AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1996
REGISTRATION STATEMENT NO. 333-3419
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
CAPITAL FACTORS HOLDING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
FLORIDA 6153 65-0500757
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------
1799 WEST OAKLAND PARK BOULEVARD
FORT LAUDERDALE, FLORIDA 33311
(954) 730-2900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
JOHN W. KIEFER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAPITAL FACTORS HOLDING, INC.
1799 WEST OAKLAND PARK BOULEVARD
FORT LAUDERDALE, FLORIDA 33311
(954) 730-2900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
WITH COPIES TO:
ROBERT L. GROSSMAN, ESQ. LEE MEYERSON, ESQ.
GREENBERG, TRAURIG, HOFFMAN, SIMPSON THACHER & BARTLETT
LIPOFF, ROSEN & QUENTEL, P.A. 425 LEXINGTON AVENUE
1221 BRICKELL AVENUE NEW YORK, NEW YORK 10017
MIAMI, FLORIDA 33131 (212) 425-2000
(305) 579-0500
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
CAPITAL FACTORS HOLDING, INC.
CROSS REFERENCE SHEET
Furnished Pursuant to Item 501(b) of Regulation S-K
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ----------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.............................. Facing Page of the Registration Statement; Cross
Reference Sheet; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus......................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges...................................... Prospectus Summary; Risk Factors
4. Use of Proceeds......................................... Use of Proceeds
5. Determination of Offering Price......................... Underwriting
6. Dilution................................................ Dilution
7. Selling Security Holders................................ *
8. Plan of Distribution.................................... Underwriting
9. Description of Securities to be Registered.............. Description of Capital Stock; Dividend Policy
10. Interests of Named Experts and Counsel.................. *
11. Information with Respect to the Registrant.............. Prospectus Summary; Risk Factors; Management's
Discussion and Analysis
of Financial Condition and Results of Operations;
(a) Description of Business................................. Business
(b) Description of Property................................. Business
(c) Legal Proceedings....................................... Business
(d) Market Price of and Dividends on the Registrant's Common Prospectus Summary; Description of Capital Stock;
Equity and Related Stockholder Matters................ Prospectus Summary; Description of Capital Stock;
Dividend Policy; Shares Eligible for Future Sale
(e) Financial Statements.................................... Financial Statements
(f) Selected Consolidated Financial Data.................... Selected Consolidated Financial Data
(g) Supplementary Financial Information..................... *
Management's Discussion and Analysis
(h) Management's Discussion and Analysis of Financial of Financial Condition and Results
Condition and Results of Operations................... Management's Discussion and Analysis of Financial Condition
and Results of Operations
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... *
(j) Directors and Executive Officers........................ Management; Principal Shareholders
(k) Executive Compensation.................................. Management
(l) Security Ownership of Certain Beneficial Owners and
Management............................................ Principal Shareholders
(m) Certain Relationships and Related Transactions.......... Management; Certain Transactions
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................ *
<FN>
- -----------
* Not applicable or answer thereto is negative.
</FN>
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED JUNE 17, 1996
2,000,000 SHARES
CAPITAL FACTORS HOLDING, INC.
COMMON STOCK
-----------------
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by Capital Factors Holding, Inc., a Florida corporation (the "Company"). All
of the Common Stock of the Company is presently owned by Capital Bank, a
Florida bank. Following this offering, Capital Bank will continue to
beneficially own approximately 83% of the outstanding Common Stock
(approximately 81% if the over-allotment option granted to the Underwriters
is exercised in full).
Prior to this offering, there has been no public trading market for the
Common Stock and there can be no assurance that any active trading market
will develop. It is currently anticipated that the public offering price will
be between $10.00 and $12.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price.
The Company's Common Stock has been approved for listing on The Nasdaq
National Market System ("Nasdaq") under the symbol "CAPF."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7 HEREOF FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF SHARES OF COMMON STOCK.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
=========================================================
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNT(1) COMPANY(2)
- ------------ ------------ --------------- --------------
Per Share . $ $ $
Total(3) .. $ $ $
============ ============ =============== ==============
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company
estimated at $ .
(3) The Company has granted the Underwriters an option, exercisable from time to
time within 30 days from the date hereof, to purchase up to 300,000
additional shares of Common Stock at the Price to Public per share, less
the Underwriting Discount, solely for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."
-----------------
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel
or reject orders in whole or in part and subject to certain other conditions.
It is expected that delivery of certificates representing the shares of
Common Stock will be made against payment on or about , 1996 at the
offices of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial
Center, New York, New York 10281.
- -----------------------------------------------------------------------------
OPPENHEIMER & CO., INC.
The date of this Prospectus is , 1996.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-----------------
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. For further information
with respect to the Company and the Common Stock offered hereby, reference is
hereby made to such Registration Statement. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. Copies
of the Registration Statement may be obtained from the Commission's principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
fees prescribed by the Commission, or may be examined without charge at the
offices of the Commission. In addition, copies of the Registration Statement
and related documents may be obtained through the Commission's Internet
address at http://www.sec.gov.
-----------------
The Company intends to furnish its shareholders with annual reports
containing audited financial statements which have been certified by its
independent public accountants, and quarterly reports containing unaudited
summary financial information for each of the first three quarters of each
fiscal year.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, ALL INFORMATION SET FORTH HEREIN (I) ASSUMES THAT
THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED, AND (II) GIVES
EFFECT TO A 10,000-FOR-1 STOCK SPLIT TO BE EFFECTED IMMEDIATELY PRIOR TO THE
OFFERING. REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" INCLUDE CAPITAL
FACTORS HOLDING, INC. ("HOLDING"), AND ITS DIRECT AND INDIRECT SUBSIDIARIES,
INCLUDING CAPITAL FACTORS, INC. ("FACTORS"), THE PRIMARY OPERATING COMPANY.
THE COMPANY
The Company is a specialized financial services company principally
engaged in providing receivables-based commercial financing and related
fee-based credit, collection and management information services. The
Company's clients are primarily small to medium size companies in various
industries, including textile and apparel and furniture manufacturing and,
recently, entities involved in the healthcare industry. The Company operates
through four offices located in New York City, Los Angeles, Charlotte and its
headquarters in South Florida.
The Company generally provides financing to its clients through the
purchase of accounts receivable owed to the Company's clients by the clients'
customers, usually on a non-recourse basis, as well as by guaranteeing
amounts due under letters of credit issued to the Company's clients which are
collateralized by such accounts receivable and other assets. The purchase of
accounts receivable is known as "factoring" and results in the payment by the
client of a factoring fee, generally equal to 0.5% to 2% of the factored
sales volume. No money is paid to the client at the time the Company
purchases the client's receivables. Payment for receivables which are
credit-approved by the Company is made to the client after collection from
the client's customer or, if the receivable was not paid based solely on the
customer's financial inability to pay, payment is made to the client within
120 days after the due date of the receivable. In some cases, the Company
does not guarantee payment of the receivable, in which case payment is made
to the client only upon collection of the receivable. Frequently, the Company
also advances funds to its clients prior to collection of receivables,
charges interest on such advances (in addition to any factoring fees) and
satisfies such advances from receivables collections. In late 1994, the
Company began to expand its asset-based lending business.
Factoring has been a method of working capital financing in the United
States for over 200 years. The factoring industry has undergone considerable
consolidation over the past several years; as a result the industry is
characterized by a small number of very large factors operating nationally,
with a multitude of small companies generally operating on a local or
regional basis. In a recent survey, the largest fourteen factoring companies
reported factoring volume in 1995 of $60.9 billion, an increase of 48% over
reported volume in 1988. The Company had a 3.3% share of this reported volume
for 1995.
The Company has grown significantly in size and profitability, with
compounded annual growth rates in operating revenues and net income of 23.6%
and 50.0%, respectively, during the period 1991 through 1995, and a
compounded annual growth rate in factored sales volume of 24.8% for the same
period. For 1995, the Company's operating revenues, net income and factored
sales volume increased by 28.5%, 42.7% and 30.2%, respectively, over 1994 and
increased by 24.7%, 1.1% and 27.8%, respectively, in the three month period
ended March 31, 1996 as compared to the same period in 1995. The Company's
operating strategy includes (i) managing credit risk to ensure consistent and
stable growth, (ii) increasing market penetration through offices in key
factoring centers, (iii) recruiting and retaining experienced personnel who
use a team approach to provide quality service, and (iv) diversifying by
product and industry, especially in healthcare financing, which management
believes has significant growth potential.
3
<PAGE>
In 1994, the Company became the first company to effect a securitization
of factored advances (the "Securitized Financings"). The advances
("Advances") are collateralized by accounts receivable from customers of the
Company's clients and, in certain cases, by cash, letters of credit,
inventory or other collateral. The Company has not employed gain-on-sale
accounting in its Securitized Financings. The Company has completed two
additional securitizations of factored advances since 1994. See "Business--
Background of the Company."
Holding is a wholly owned subsidiary of Capital Bank, a Florida commercial
bank ("Capital Bank"), which is a wholly owned subsidiary of Capital Bancorp
("Bancorp"). The Company's principal executive offices are located at 1799
West Oakland Park Boulevard, Fort Lauderdale, Florida 33311, and its
telephone number is (954) 730-2900.
RECENT DEVELOPMENTS
The Company's operating revenues and net income for the two months ended
May 31, 1996 were approximately $7.3 million and approximately $1.7 million,
respectively, as compared to approximately $5.5 million and approximately
$1.3 million, respectively, for the same two month period ended May 31, 1995,
a 32.2% and 30.8% increase, respectively.
The Company's operating revenues and net income for the five month period
ended May 31, 1996 were approximately $16.9 million and approximately $3.6
million, respectively, as compared to approximately $13.2 million and
approximately $3.2 million, respectively, for the same period ended May 31,
1995, a 27.8% and 13.4% increase, respectively. Factored sales increased from
approximately $745.3 million for the five months ended May 31, 1995 to
approximately $983.1 million for the five months ended May 31, 1996, an
increase of 31.9%, with factoring fees increasing 27.6% from approximately
$7.6 million to approximately $9.8 million, respectively, for the same five
month periods. The provision for credit losses increased from approximately
$800,000 for the 5 month period ended May 31, 1995 to approximately $1.8
million for the same period ended May 31, 1996. The provision as a percentage
of factored sales increased from 0.11% to 0.18%, respectively, for the same
five month periods, compared to 0.20% for the three months ended March 31,
1996.
The Company has executed a letter of intent in connection with a proposed
acquisition of the assets of a specialized financial services company
principally engaged in providing receivables-based commercial financing and
related fee-based credit, collection and management information services to
temporary employment and home healthcare agencies. Pursuant to the letter of
intent, the purchase price would be $900,000 over the book value of the
assets acquired (estimated by the seller to be between $7 and $10 million),
plus an additional amount up to $900,000 payable over 3 years if certain
contingencies are met. The Company expects that the purchase price will be
funded by the Company's revolving line of credit from its sole shareholder,
Capital Bank. The proposed seller provides certain services not presently
provided by the Company, including billing, payroll processing, payroll tax,
payroll reporting and other payroll services and insurance reporting, some of
which may require regulatory approval prior to being engaged in by the
Company. No assurances can be given that the Company will consummate this
proposed acquisition.
THE OFFERING
Common Stock Offered by the Company.... 2,000,000 SHARES
Common Stock outstanding
after this offering ................... 12,000,000 shares(1)
Use of proceeds ........................ To reduce indebtedness(2)
Nasdaq symbol ................. "CAPF"
- ------------
(1) Does not include 800,000 shares of Common Stock reserved for issuance
upon exercise of stock options granted under the Company's stock option
plan. See "Management--Company Stock Option Plan."
(2) The proceeds from the offering will be used to reduce the Company's
indebtedness to its sole shareholder, Capital Bank.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------ ----------------------
1991 1992 1993 1994 1995 1995 1996
-------- ---------- ---------- ---------- ---------- --------- --------
INCOME STATEMENT DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Factoring fees .......................... $ 9,870 $ 12,482 $ 15,376 $ 17,371 $ 19,519 $ 4,565 $ 5,524
Net interest income ..................... 3,762 4,445 5,669 7,299 11,850 2,451 3,018
Letter of credit and other fees ......... 378 665 1,128 1,238 2,040 351 754
Other income ............................ 1,092 905 1,303 1,541 1,849 324 291
-------- ---------- ---------- ---------- ---------- --------- --------
Operating revenues .................... 15,102 18,497 23,476 27,449 35,258 7,691 9,587
Provision for credit losses ............. 2,550 3,150 2,645 2,235 2,235 450 1,100
Operating expenses ...................... 9,594 11,316 13,072 14,137 18,457 4,102 5,289
-------- ---------- ---------- ---------- ---------- --------- --------
Total expenses ........................ 12,144 14,466 15,717 16,372 20,692 4,552 6,389
Income before income taxes(1) ........... 2,958 4,031 7,759 11,077 14,566 3,139 3,198
Net income .............................. 1,716 2,304 4,305 6,092 8,693 1,883 1,903
Net income per share .................... $ 0.17 $ 0.23 $ 0.43 $ 0.61 $ 0.87 $ 0.19 $ 0.19
PRO FORMA INCOME STATEMENT DATA(2):
Pro forma net interest income ......... $ 13,621 $ 3,437
Pro forma net income .................... 9,750 2,152
Pro forma net income per share .......... 0.81 0.18
OPERATING RATIOS AND OTHER DATA(3):
Factored sales .......................... $825,116 $1,057,846 $1,326,802 $1,536,960 $2,001,364 $441,211 $563,989
Factoring fees to factored sales ........ 1.20% 1.18% 1.16% 1.13% 0.98% 1.03% 0.98%
Net interest income to factored sales ... 0.46% 0.42% 0.43% 0.47% 0.59% 0.56% 0.54%
Letter of credit and other fees to
factored sales ......................... 0.05% 0.06% 0.09% 0.08% 0.10% 0.08% 0.13%
Other income to factored sales .......... 0.13% 0.09% 0.09% 0.10% 0.09% 0.07% 0.05%
-------- ---------- ---------- ---------- ---------- --------- --------
1.84% 1.75% 1.77% 1.79% 1.76% 1.74% 1.70%
Provision for credit losses to
factored sales ........................ 0.31% 0.30% 0.20% 0.15% 0.11% 0.10% 0.20%
Operating expenses to factored sales .... 1.16% 1.07% 0.99% 0.92% 0.92% 0.93% 0.94%
-------- ---------- ---------- ---------- ---------- --------- --------
Total expenses to factored sales ........ 1.47% 1.37% 1.18% 1.07% 1.03% 1.03% 1.13%
Income before income taxes to
factored sales ........................ 0.36% 0.38% 0.58% 0.72% 0.73% 0.71% 0.57%
Return on equity(4) ..................... 15.63% 17.78% 26.57% 28.80% 30.20% 29.58%(6) 22.27%(6)
Return on assets(4) ..................... 1.23% 1.32% 1.99% 2.35% 2.51% 2.57%(6) 1.86%(6)
Average funds employed(5) ............... $ 89,700 $ 108,300 $ 131,800 $ 153,600 $ 210,900 $188,800 $243,000
Net interest income to average
funds employed ........................ 4.19% 4.10% 4.30% 4.75% 5.62% 5.26%(6) 5.04%(6)
Net charge-offs to factored
sales volume .......................... 0.16% 0.30% 0.20% 0.17% 0.05% 0.05% 0.25%
Accounts receivable turnover
in days(7) ............................ 53 54 52 53 53 50 51
Average number of employees ............. 118 140 153 162 193 177 222
Average factored sales per employee ..... $ 6,158 $ 7,246 $ 8,672 $ 9,487 $ 10,370 $ 9,971(6) 10,162(6)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
------------------ ---------------------------
AS
ACTUAL ACTUAL ADJUSTED(8)
------------------ ----------- --------------
BALANCE SHEET DATA: (UNAUDITED)
<S> <C> <C> <C>
Receivables, net ........................ $354,821 $394,780 $394,780
Total assets ............................ 399,471 425,160 425,160
Due to factoring clients ................ 128,578 141,578 141,578
Borrowings .............................. 227,260 244,754 224,794
Due to Affiliates and other liabilities 10,293 3,585 3,585
Shareholders' equity .................... 33,340 35,243 55,203
</TABLE>
5
<PAGE>
(1) The results of operations of the Company are included in the consolidated
Federal income tax returns filed by Capital Bancorp, the parent of
Capital Bank. Capital Bank, the Company's sole shareholder, allocates
income taxes to the Company calculated on a separate return basis. See
"Certain Transactions."
(2) Pro forma income statement data reflects (i) the issuance of 2,000,000
shares of Common Stock offered hereby as if such issuance had occurred on
January 1, 1995 or January 1, 1996, at an assumed initial public offering
price of $11.00 per share, net of issuance costs, and the use of the net
proceeds therefrom to repay indebtedness as described in "Use of Proceeds,"
and (ii) reduction of interest expense related to such indebtedness, net of
income taxes, as if the repayment occurred on January 1, 1995 or January 1,
1996.
(3) For purposes of the ratios and data below for 1994 and 1995, factored sales
include certain receivables which are pledged as collateral for those
asset-based loans for which the Company provides factoring-type services.
(4) Computed using average monthly balances.
(5) Computed using average monthly balances of funds employed (receivables
less amounts due to factoring clients).
(6) Computed on an annualized basis.
(7) Computed by dividing 365 by the quotient of (i) factored sales volume for
the periods indicated and (ii) the average monthly accounts receivable
balance for the periods indicated.
(8) Adjusted to give effect to the sale of the Common Stock offered hereby
(at an assumed initial public offering price of $11.00 per share) and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
INVESTMENT IN THE COMPANY'S COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, TOGETHER WITH THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS, BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THE
CAUTIONARY STATEMENTS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS SHOULD
BE READ AS ACCOMPANYING FORWARD-LOOKING STATEMENTS INCLUDED UNDER
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," "BUSINESS" AND ELSEWHERE HEREIN. THE RISKS DESCRIBED IN SUCH
STATEMENTS COULD CAUSE THE COMPANY'S RESULTS TO DIFFER MATERIALLY FROM THOSE
EXPRESSED IN OR INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
CREDIT LOSSES; RECESSIONARY ENVIRONMENT. The financial failure of clients
or their customers may adversely affect the Company's ability to fully
recover amounts due under either the accounts receivable purchased by the
Company or advances made to clients under the Company's factoring
arrangements. Accordingly, the Company makes provisions for credit losses.
The allowance for credit losses is determined after evaluating the
outstanding receivables and advances, current economic conditions, changes in
the nature and the volume of the outstanding receivables and advances, past
loss experience and other pertinent considerations. Many of these
considerations involve significant estimation and are subject to rapid
changes which may be unforeseen by management and could result in immediate
increased losses and material adjustments to the allowance. As a result,
ultimate losses could be significant and may vary from current estimates and
the amount of provisions for credit losses may be either greater or less than
actual future charge-offs of receivables or advances relating to these
provisions. Additionally, the Company's results of operations could be
materially and adversely affected if the Company were to experience a loss as
a result of the purchase of fraudulent receivables. The Company also
guarantees payment of letters of credit issued for the benefit of its
clients, which pose similar risks as discussed above. See "Business--Credit
Loss Policy and Experience." Moreover, the risks to which the Company's
business is subject become more acute in an economic slowdown or recession
because less accounts receivable may be generated by clients, resulting in
decreased factoring fees, and financial ability of customers to pay
outstanding accounts receivable and clients to pay outstanding advances may
be impaired, resulting in increased credit losses. Some of the Company's
clients are startup or less mature ventures that may be more susceptible to
economic slowdowns or recessions.
DEPENDENCE ON AVAILABILITY OF FUNDING SOURCES. The Company obtains
substantially all of its funds for its factoring activities from (i) the
Securitized Financings (presently $175 million) which expire between December
1999 and January 2001 and (ii) a $125 million revolving line of credit (the
"Capital Facility") funded by its sole shareholder, Capital Bank, a Florida
commercial bank, which facility is subject to annual review by Capital Bank
each June and is due on demand. The Company also has a $40 million revolving
line of credit with an unaffiliated commercial bank which was closed in April
1996, the initial term of which expires on March 4, 1999, subject to
automatic one-year renewals unless sooner terminated by either party thereto
(the "Other Bank Facility"). While the Company expects to have continued
access to credit after expiration of these facilities, there is no assurance
that such financing will be available, or if available, that it will be on
terms as favorable. In the event the Company is not able to renew the
Securitized Financings, the Capital Facility or the Other Bank Facility or
find alternative financing for its activities, the Company would be forced to
curtail or cease its factoring and financing business, which action would
have a material adverse effect on the Company's operations and financial
condition. In the event that certain adverse regulatory actions were taken
against Capital Bank (which the Company does not currently anticipate) the
Company's ability to access the Securitized Financings, as well as any other
financings, could be adversely affected. Furthermore, the Company would be
unable to access the Securitized Financings for future funding in the event
Capital Bank became a party to any proceeding provided for by any debtor
relief law, other than as creditor or claimant.
DILUTION OF RECEIVABLES. Dilution of factored receivables occurs when such
receivables are not fully collectable for reasons other than the client's
customer's financial inability to pay (such as disagreements as to the
quality of goods shipped). The Company generally advances funds to borrowing
7
<PAGE>
clients up to a specified percentage of factored sales purchased. Should
dilution occur in excess of the amount of the receivables not advanced upon,
the Company will in practice typically need to look to newer receivables of
the client for the collection of the outstanding obligation to the Company.
Significant dilution may be an indication of problems in a client's business
which could result in a decreased volume of new receivables available for
payment of outstanding obligations to the Company. Some dilution occurs with
respect to most, if not all, clients. Increased dilution with respect to any
client's receivables puts the Company's collection of the client's obligation
to the Company at risk. The Company monitors dilution on a daily basis.
Notwithstanding the foregoing, the Company may not be able to react quickly
enough to dilution to avoid losses and to ensure collection of receivables.
CONCENTRATION OF CLIENT BASE AND CLIENT CUSTOMER BASE. A large percentage
of the Company's clients are in the textile and apparel industry and the
furniture manufacturing industry, as well as certain other industries. At
March 31, 1996, textile and apparel factored receivables accounted for 78% of
the Company's total factored receivables, while furniture manufacturing and
healthcare factored receivables accounted for 6% and 4%, respectively. The
remaining factored receivables are represented by the home furnishing, floor
covering, service, food, toy and other miscellaneous industries. These
industries are segmented by product, price, style and other items. Many of
the customers of the Company's clients are in various retail or wholesale
industry segments. Adverse conditions in any of these industries or industry
segments could have a material adverse effect on the Company and on the
Company's ability to collect receivables from certain of its clients'
customers.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL. The Company's success depends
to a significant degree upon the continued contributions of members of its
senior management, particularly John W. Kiefer, the Company's President and
Chief Executive Officer, Stephen J. Donohue, the Company's Executive Vice
President--New York Regional Manager, and James L. Morrison, the Company's
Executive Vice President--California Regional Manager, as well as other
officers and key personnel, many of whom would be difficult to replace. The
future success of the Company also depends on its ability to identify,
attract and retain additional qualified technical and managerial personnel,
particularly in the healthcare financing industry. In light of the fact that
following this offering Capital Bank will continue to own 83% of the
Company's outstanding Common Stock (approximately 81% if the overallotment
option granted to the Underwriters is executed in full), Capital Bank will
have significant influence over decisions regarding the continued employment
of executive officers and key employees of the Company, including Mr. Kiefer.
Although the Company has employment agreements with Messrs. Kiefer, Donohue
and Morrison, and is negotiating new agreements with Messrs. Donohue and
Morrison, the loss of Messrs. Kiefer, Donohue and Morrison or other officers
and key personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management."
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS. The Company, as well as
the factoring industry, has historically experienced and expects to continue
to experience seasonal fluctuations in its factored sales volume and
factoring fees, which generally have been highest during the period from
August through November. A principal reason for the fluctuation in the
Company's factored sales volume and factoring fees is the seasonality in the
sales of certain of the Company's clients, especially those in the apparel
industry, which typically ship more goods during such 4-month period in order
to fill increased customer orders in anticipation of "back to school" and the
ensuing holiday season. The Company realized approximately 40.0% of its
annual factored sales volume in each of 1994 (approximately $605 million of
$1.5 billion annual factored sales) and 1995 (approximately $757 million of
$2 billion annual factored sales) during this 4-month period. Historical
experience indicates that the Company's factored sales volume is at its
lowest during the period from December through February. Although the
Company's healthcare financing services should help to mitigate the effect of
seasonal fluctuations in the Company's operating results, the Company does
expect to see fluctuations in its quarter-to-quarter results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
ABILITY OF THE COMPANY TO CONTINUE ITS GROWTH STRATEGY. The Company's
growth strategy is principally dependent upon its ability to increase its
factored sales volume by purchasing good quality
8
<PAGE>
accounts receivable meeting its underwriting standards. In 1995, the
Company's factored sales volume increased approximately 30.2% to
approximately $2 billion and operating revenue increased by approximately
28.5% to $35.3 million, as compared to that of 1994. During the first three
months of 1996, the Company's factored sales volume increased by
approximately 27.8% to approximately $564.0 million and operating revenues
increased approximately 24.7% to approximately $9.6 million, as compared to
the three month period ended March 31, 1995. The Company experiences a
certain amount of turnover in its client base annually due primarily to
credit issues. Therefore, the Company's ability to further implement its
strategy for continued growth of factored sales volume is largely dependent
upon the Company's ability to attract and retain quality clients for the
Company's services in a competitive market and on the business growth of
those clients, which may be affected by a number of factors not within the
Company's control. Historical growth rates are not necessarily indicative of
future results.
COMPETITION. The Company competes with numerous banks, financial
institutions, commercial finance companies and other factoring companies with
greater financial and other resources than the Company. The four largest
factors in the United States had approximately $37.9 billion of reported
volume in factored sales in 1995, compared to approximately $2 billion in
factored sales volume for the Company in 1995. The Company also competes with
other regional factoring companies. The Company's competitors target similar
clients to the Company and generally have operated in the markets serviced by
the Company for a longer period of time than the Company. See "Business--
Competition."
INABILITY TO DIRECTLY COLLECT HEALTHCARE RECEIVABLES FROM MEDICARE AND
MEDICAID; DILUTION OF HEALTHCARE RECEIVABLES. The Company's healthcare
division provides healthcare financing and factoring services to hospitals,
nursing homes, doctor groups, home treatment centers, home healthcare
provider services, temporary nursing or staffing services and providers of
durable medical equipment. A significant portion of the Company's healthcare
receivables are payable by Medicare and Medicaid, federal government
sponsored programs. Pursuant to Federal law, a healthcare provider is
prohibited from granting a third party a direct assignment of Medicare and/or
Medicaid proceeds. Accordingly, all Medicare and Medicaid proceeds are paid
directly to the provider of the medical services. As a result, the Company is
unable to perform certain traditional factoring services with respect to such
receivables, such as collection, and, instead, the Company must closely
monitor the client's collection of such receivables on a daily basis.
Although to date the Company has been successful in monitoring and collecting
its Medicare and Medicaid-based receivables directly from its clients, there
can be no assurance that the Company will continue to be successful in its
monitoring and collection activities in the future. In addition, healthcare
receivables have historically been subject to significant dilution. While the
Company has been successful in managing dilution and has not realized any
losses to date, there can be no assurance that the Company will continue to
be successful in managing dilution or that the Company will not realize
losses in the future as a result of dilution of its healthcare receivables.
See "Business--Healthcare Financing" and "Dilution of Receivables."
CONTROL BY MAJORITY SHAREHOLDER. Upon completion of this offering, the
Company's current sole shareholder, Capital Bank, which is a wholly-owned
subsidiary of Bancorp, will beneficially own approximately 83% of the
outstanding shares of Common Stock (approximately 81% if the Underwriters'
over-allotment option is exercised in full) and will therefore be able to
elect the entire Board of Directors and control all matters submitted to
shareholders for a vote, all fundamental corporate matters, including the
selection of management and key personnel, whether the Company engages in any
mergers, acquisitions or other business combinations or whether Capital Bank,
at some time in the future, divests all or any portion of its interest in
Holding by means of a distribution to its shareholders or otherwise. Four of
the ten anticipated directors of Holding also serve as officers or directors
of Capital Bank or its affiliates.
The ownership interest of Capital Bank in Holding has been structured so
as not to violate one of the requirements necessary for the Company to
qualify for a subsequent tax free distribution of all or a portion of Capital
Bank's shares in Holding, should Capital Bank or Bancorp decide to make such
a distribution in the future. The Company has been advised by Capital Bank
and Bancorp that no
9
<PAGE>
decision has been made to make such a distribution and that even if a
decision is made to proceed with such a distribution, no assurances can be
given that all conditions precedent could be satisfied. As a part of such
corporate structure, no additional shares of Common Stock may be issued that
would reduce Capital Bank's interest below 80% without Capital Bank's written
approval, for the period that Capital Bank owns at least 80% of the issued
and outstanding Common Stock of the Company (the "Eighty Percent Period").
Such restriction is reflected in the Amended and Restated Articles of
Incorporation of the Company (the "Articles") and in an agreement being
entered into among Capital Bank, the Company and the Company's subsidiaries.
In addition, although the Articles provide for the issuance by the Company of
one or more series of preferred stock from time to time, during the Eighty
Percent Period no shares of any other class of capital stock may be issued
without Capital Bank's written approval during such period, nor may the
Company invest in or form any corporation without such approval. Amendments
to its bylaws and changes to the Board are also subject to such approval
during the Eighty Percent Period. Similar restrictions apply to the Company's
direct and indirect subsidiaries, except that such subsidiaries are
restricted from issuing any shares without Capital Bank's approval. Any
decision as to whether any transactions of the type mentioned above
ultimately occur will be solely within the discretion of Bancorp and Capital
Bank. See "Management," "Certain Transactions," "Principal Shareholders" and
"Description of Capital Stock."
REGULATORY RESTRICTIONS RELATING TO POTENTIAL NEW ACTIVITIES. The
Company's immediate parent, Capital Bank, is a Florida-chartered,
FDIC-insured bank. Accordingly, the business activities of the Company are
generally limited under applicable FDIC regulations to those activities that
are permissible for national banks. Although factoring and the other
businesses in which the Company currently engages are authorized activities
for national banks, there can be no assurance that business opportunities the
Company might wish to pursue in the future will be authorized activities for
Capital Bank and therefore such activities might be unavailable to the
Company because of its regulated status as a subsidiary of Capital Bank. See
"Business--Regulation" and "Principal Shareholders."
BANCORP AND CAPITAL BANK LITIGATION. At times over the past several years,
Bancorp, Capital Bank and certain of their former and existing officers and
directors, including Daniel M. Holtz, the Chairman of the Board, Chief
Executive Officer and President of Bancorp and Capital Bank and a director of
the Company, Fana Holtz, Vice-Chairman of the Bancorp Board, Javier J. Holtz,
Chairman of the Board and Executive Vice President of the Company, a Senior
Vice President of Bancorp and an Executive Vice President and a director of
Capital Bank, and Abel Holtz, the former Chairman of the Board, Chief
Executive Officer and President of Bancorp and Capital Bank and the former
Chairman of the Board of the Company, and presently a shareholder of Bancorp,
have been parties to litigation brought either by certain shareholders of
Bancorp or its Audit Committee. Although an initial action brought in 1992 by
the Audit Committee was voluntarily dismissed by the plaintiffs, a derivative
action and an individual action were brought by certain shareholders of
Bancorp in February 1995. See "Business--Legal and Administrative
Proceedings" for a description of the action brought by the Audit Committee.
Pursuant to the derivative action, the plaintiffs have alleged, among
other things, that certain defendants engaged in a series of illegal
activities causing harm to Bancorp and Capital Bank. In addition, the
plaintiffs have alleged that certain of such officers and directors engaged
in a series of activities designed to improperly increase or maintain their
interest in, and control of, Bancorp. In the individual action, the
plaintiffs have alleged, among other things, that the defendants breached
fiduciary duties by, among other things, improperly using proxies to vote
shares of Bancorp owned by one plaintiff, that certain of the defendants
unlawfully solicited proxies for a shareholders' meeting and that actions
taken at this meeting were invalid. The plaintiffs are seeking, on behalf of
Bancorp in the derivative action, and on behalf of themselves in the
individual action, unspecified monetary damages, including treble damages,
reasonable costs and attorneys' fees, and certain injunctive and declaratory
relief. The plaintiffs have not indicated that they are seeking any monetary
relief from Bancorp and Capital Bank other than costs in the individual
action. The defendants have denied the allegations and are defending against
both actions. The Company is not a party to these proceedings and no relief
is sought from the Company, although Daniel Holtz, a director of the Company,
and Javier Holtz, Chairman of the Board and an Executive Vice President of
the Company, are defendants in the
10
<PAGE>
litigation. Although the Company does not believe that the outcome of the
foregoing litigations will have a material adverse effect on its financial
condition, results of operations or liquidity, the Company cannot predict
what effect, if any, such litigation will have on the Company. For more
information regarding these matters, see "Business--Legal and Administrative
Proceedings" and "Principal Shareholders."
PENDING BANCORP AND CAPITAL BANK CHANGE IN CONTROL APPLICATIONS. Daniel
Holtz, Fana Holtz and Javier Holtz have advised Bancorp that they had
discussions with the Florida Department of Banking and Finance ("FDBF") as to
whether one or more of them was required under Florida law to file an
application to acquire and/or maintain a controlling interest in Capital Bank
through their ownership and control of Bancorp. As a result of those
discussions, Daniel Holtz, Fana Holtz and Javier Holtz have advised Bancorp
that they, both individually and as a group, have voluntarily filed an
application to acquire and/or maintain a controlling interest in Bancorp,
although they do not believe such an application is legally required. Daniel
Holtz, Fana Holtz and Javier Holtz are also having discussions with the Board
of Governors of the Federal Reserve System ("FRB") as to whether a change of
control notice is required under federal law. It presently cannot be
determined what effect, if any, the discussions with the FRB or the FDBF's
action on the application will have on Bancorp, Capital Bank and the Company,
although if the control applications are denied, regulatory authorities could
take various actions, including requiring that one or more members of the
Holtz family divest sufficient shares of Bancorp so as not to have legal
control of Bancorp as defined by regulatory authorities. As Bancorp and
Capital Bank will continue to control the Company after this offering, any
such actions could have an effect on the Company which cannot presently be
predicted, although the Company does not believe that the outcome of the
foregoing will have a material adverse effect on its financial condition,
results of operations or liquidity. For more information regarding the change
in control application, see "Business--Legal and Administrative Proceedings"
and "Principal Shareholders."
INVESTIGATIONS BY FEDERAL BANKING AUTHORITIES. Abel Holtz is also subject
to the restrictions of Section 19 of the Federal Deposit Insurance Act as a
result of entering a guilty plea to one count of giving misleading testimony
in 1991 to a Federal Grand Jury in violation of a federal statute, with
respect to the purpose of certain payments made by Capital Bank, the Company
and certain related parties to a public official. As a result, he is
precluded from owning or controlling, or otherwise participating in, the
affairs of Bancorp and Capital Bank without regulatory approval. Abel Holtz
has advised Bancorp that he has orally agreed with the FDIC not to vote his
shares in Bancorp at the present time. Federal bank regulatory authorities
are also examining and investigating whether Abel Holtz and some or all of
the persons discussed in this section, including Bancorp and its
subsidiaries, as well as possibly other persons, are in compliance with
applicable change in control laws and Section 19. The Company cannot
presently determine when these investigations by the federal bank regulatory
authorities will be completed or what the results of such investigations will
be. The resolution of certain of these examinations and investigations could
have an effect on Bancorp and Capital Bank, and as a result of their control
of the Company, the Company, which effect cannot presently be determined.
However, the Company does not believe that the outcome of the foregoing will
have a material adverse effect on its financial condition, results of
operations or liquidity.
NO DIVIDENDS. The Company has not paid any cash dividends to date and does
not intend to pay cash dividends in the foreseeable future. The Company
intends to retain earnings to finance the development and expansion of its
business. Under the Securitized Financings, the Company is prohibited from
paying dividends if immediately after giving effect to such dividend payment
the consolidated net worth of the Company will be less than that of the
Company as of December 31, 1993. In addition, the Other Bank Facility
prohibits the Company from paying dividends if immediately after giving
effect to such dividend payments the Company fails to meet certain financial
covenants and ratios, such as those relating to debt to net worth (no less
than 1 to 1), profitability ($5.2 million consolidated net income per year)
and positive net cash flows (more than $1 for each quarter). In addition,
because Holding conducts substantially all of its business through
subsidiaries, its ability to pay dividends in the future is dependent upon
its receipt of dividends paid to it by its subsidiaries. See "Dividend
Policy."
11
<PAGE>
ABSENCE OF PUBLIC MARKET; POSSIBLE FLUCTUATIONS OF STOCK PRICE. Prior to
this offering, there has been no public market for the Company's Common
Stock. There can be no assurance that an active trading market for the Common
Stock will develop or that, if developed, it will be sustained after this
offering or that it will be possible to resell the shares of Common Stock at
or above the initial public offering price. The market price of the Common
Stock could be subject to significant fluctuations in response to the
Company's operating results and other factors. In addition, the stock market
in recent years has experienced extreme price and volume fluctuations that
often have been unrelated or disproportionate to the operating performance of
companies. Such fluctuations, and general economic and market conditions, may
adversely affect the market price of the Common Stock. See "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of this offering, the
Company will have 12,000,000 shares of Common Stock outstanding. Of these
shares, 2,000,000 shares (2,300,000 if the over-allotment option granted to
the Underwriters is exercised in full) will be freely tradeable without
restriction or registration under the Securities Act of 1933, as amended (the
"Act"). All of the remaining 10,000,000 shares of Common Stock held by
Capital Bank, the current sole shareholder of the Company, will be
"restricted securities" as that term is defined in Rule 144 promulgated under
the Act. The current sole shareholder has agreed not to sell any such shares
of Common Stock for 180 days from the date of this Prospectus without the
prior written consent of Oppenheimer & Co., Inc., as representative of the
Underwriters. See "Underwriting." Additionally, upon consummation of this
offering, 800,000 shares of Common Stock will be reserved for issuance under
the Company's Stock Option Plan. The Company intends to register under the
Act all shares reserved for issuance under its Stock Option Plan. Shares
covered by such registration will be eligible for resale in the public
market, subject to Rule 144 limitations applicable to affiliates. See
"Management--Stock Option Plan." Future sales of substantial amounts of
Common Stock in the public market, or the availability of such shares for
future sale, could impair the Company's ability to raise capital through an
offering of securities and may adversely affect the then-prevailing market
prices. See "Shares Eligible for Future Sale."
FACTORS INHIBITING TAKEOVER. As the Company's sole shareholder, Capital
Bank, will continue to own in excess of 80% of the Company's Common Stock
after this offering, no takeover would be successful without its consent.
Changes in the management or ownership of Capital Bank or Bancorp or a
reduction in the number of shares owned by Capital Bank, however, could have
an effect on the likelihood of a takeover. See "Business--Regulation."
However, the Articles provide that no additional shares of Common Stock may
be issued that would reduce Capital Bank's interest below 80% without Capital
Bank's written approval during the Eighty Percent Period. In addition,
although the Articles provide for the issuance of one or more series of
Preferred Stock from time to time, during the Eighty Percent Period no shares
of any other class of capital stock or other equity security may be issued
without Capital Bank's written approval. Even in the event that at some later
date Capital Bank's percentage ownership in the Company is significantly
reduced, certain provisions of the Company's Articles and Amended and
Restated Bylaws (the "Bylaws") may be deemed to have anti-takeover effects
and may delay, defer or prevent a takeover attempt that a shareholder might
consider in its best interest. The Company's Articles authorize the Board to
determine the rights, preferences, privileges and restrictions of unissued
series of Preferred Stock and to fix the number of shares of any series of
Preferred Stock and the designation of any such series, without any vote or
action by the Company's shareholders. Thus, the Board can authorize and issue
shares of Preferred Stock with voting or conversion rights that could
adversely affect the voting or other rights of holders of the Company's
Common Stock. In addition, the issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change of control of the
Company, since the terms of the Preferred Stock that might be issued could
potentially prohibit the Company's consummation of any merger,
reorganization, sale of substantially all of its assets, liquidation or other
extraordinary corporate transaction without the approval of the holders of
the outstanding shares of the Common Stock. Other provisions of the Company's
Articles and Bylaws provide that special meetings of the shareholders may be
called only by the Board of Directors or upon the written demand of the
holders of not less than 30% of the votes entitled to be cast at a special
meeting. Capital Bank could also vote to amend the Articles or Bylaws
12
<PAGE>
without the vote of any other shareholders. Such amendments could include
other anti-takeover provisions. In addition, certain provisions of the
Florida Business Corporation Act may have the effect of delaying, deferring
or preventing a change in control of the Company. See "Description of Capital
Stock--Anti-takeover Effects of Certain Provisions of Florida Law and the
Company's Articles of Incorporation and Bylaws."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of shares of
Common Stock offered hereby, based upon an assumed initial public offering
price of $11.00 per share and after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $20.0 million
($23.1 million if the over-allotment option granted to the Underwriters is
exercised in full).
The Company intends to use all of the net proceeds to reduce the Company's
indebtedness to its sole shareholder, Capital Bank, under the Capital
Facility, which bears interest at the prime rate, as published in THE WALL
STREET JOURNAL (8.25% at March 31, 1996), is subject to annual review each
June by Capital Bank and is due on demand. The outstanding borrowings under
the Capital Facility were approximately $69.8 million at March 31, 1996. See
Note 6 of Notes to the Company's Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
The Company intends to retain all future earnings for the operation and
expansion of its business, and does not anticipate paying cash dividends in
the foreseeable future. Any future determination as to the payment of cash
dividends will depend upon the Company's results of operations, financial
condition and capital requirements and any regulatory restrictions or
restrictions under credit agreements or other funding sources of the Company
existing from time to time, as well as other matters which the Company's
Board of Directors may consider. See "Risk Factors."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, giving effect to the 10,000-for-1 stock split to be effected
immediately prior to this offering, and as adjusted for the sale of the
2,000,000 shares of Common Stock offered hereby (at an assumed public
offering price of $11.00 per share) and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
ACTUAL AS ADJUSTED
----------- --------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
BORROWINGS:
Notes Payable ........................................... $ 69,754 $ 49,794
Variable Rate Asset-Backed Certificates ................. 175,000 175,000
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding ..................... 0 0
Common Stock, $.01 par value; 25,000,000 shares
authorized; 10,000,000 shares issued and outstanding;
12,000,000 shares issued and outstanding, as
adjusted(1) ........................................... 100 120
Additional paid-in capital ............................... 9,542 29,482
Retained earnings ....................................... 25,601 25,601
----------- --------------
Total shareholders' equity ............................ 35,243 55,203
----------- --------------
TOTAL CAPITALIZATION .................................. $279,997 $279,997
=========== ==============
</TABLE>
- ------------
(1) Does not include shares of Common Stock reserved for issuance upon
exercise of stock options granted under the Company's Stock Option Plan
or shares issuable pursuant to the Underwriters' over-allotment option.
See "Management--Company Stock Option Plan" and "Underwriting."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)
The consolidated selected financial data set forth below for income
statement and balance sheet data has been derived from the consolidated
financial statements of the Company contained elsewhere herein. The
consolidated financial statements as of and for the years ended December 31,
1991, 1992, 1993, 1994 and 1995 have been audited by Deloitte & Touche LLP,
independent auditors. The income statement data for the three months ended
March 31, 1995 and 1996, and the balance sheet data as of March 31, 1996,
have been derived from unaudited interim consolidated financial statements
contained elsewhere herein, which, in the opinion of management, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The data set forth
below should be read in conjunction with the financial statements and related
notes, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- ----------- ----------- ---------- ---------- -------- --------
INCOME STATEMENT DATA: (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Factoring fees .......................... $ 9,870 $ 12,482 $ 15,376 $ 17,371 $ 19,519 $ 4,565 $ 5,524
Net interest income ..................... 3,762 4,445 5,669 7,299 11,850 2,451 3,018
Letter of credit and other fees ......... 378 665 1,128 1,238 2,040 351 754
Other income ............................ 1,092 905 1,303 1,541 1,849 324 291
-------- ----------- ----------- ---------- ---------- -------- --------
Operating revenues .................... 15,102 18,497 23,476 27,449 35,258 7,691 9,587
Provision for credit losses ............. 2,550 3,150 2,645 2,235 2,235 450 1,100
Operating expenses ...................... 9,594 11,316 13,072 14,137 18,457 4,102 5,289
-------- ----------- ----------- ---------- ---------- -------- --------
Total expenses ........................ 12,144 14,466 15,717 16,372 20,692 4,552 6,389
Income before income taxes(1) ........... 2,958 4,031 7,759 11,077 14,566 3,139 3,198
Net income .............................. 1,716 2,304 4,305 6,092 8,693 1,883 1,903
Net income per share .................... $ 0.17 $ 0.23 $ 0.43 $ 0.61 $ 0.87 $ 0.19 $ 0.19
PRO FORMA INCOME STATEMENT DATA(2):
Pro forma net interest income ........... $ 13,621 $ 3,437
Pro forma net income .................... 9,750 2,152
Pro forma net income per share .......... 0.81 0.18
OPERATING RATIOS AND OTHER DATA(3):
Factored sales .......................... $825,116 $1,057,846 $1,326,802 $1,536,960 $2,001,364 $441,211 $563,989
Factoring fees to factored sales ........ 1.20% 1.18% 1.16% 1.13% 0.98% 1.03% 0.98%
Net interest income to factored sales ... 0.46% 0.42% 0.43% 0.47% 0.59% 0.56% 0.54%
Letter of credit and other fees to
factored sales 0.05% 0.06% 0.09% 0.08% 0.10% 0.08% 0.13%
Other income to factored sales .......... 0.13% 0.09% 0.09% 0.10% 0.09% 0.07% 0.05%
-------- ----------- ----------- ---------- ---------- -------- --------
1.84% 1.75% 1.77% 1.79% 1.76% 1.74% 1.70%
Provision for credit losses to
factored sales 0.31% 0.30% 0.20% 0.15% 0.11% 0.10% 0.20%
Operating expenses to factored sales .... 1.16% 1.07% 0.99% 0.92% 0.92% 0.93% 0.94%
-------- ----------- ----------- ---------- ---------- -------- --------
Total expenses to factored sales ........ 1.47% 1.37% 1.18% 1.07% 1.03% 1.03% 1.13%
Income before income taxes to
factored sales......................... 0.36% 0.38% 0.58% 0.72% 0.73% 0.71% 0.57%
Return on equity(4) ..................... 15.63% 17.78% 26.57% 28.80% 30.20% 29.58%(6) 22.27%(6)
Return on assets(4) ..................... 1.23% 1.32% 1.99% 2.35% 2.51% 2.57%(6) 1.86%(6)
Average funds employed(5) ............... $ 89,700 $ 108,300 $ 131,800 $ 153,600 $ 210,900 $188,800 $243,000
Net interest income to average
funds employed ........................ 4.19% 4.10% 4.30% 4.75% 5.62% 5.26%(6) 5.04%(6)
Net charge-offs to factored
sales volume........................... 0.16% 0.30% 0.20% 0.17% 0.05% 0.05% 0.25%
Accounts receivable turnover
in days(7)............................. 53 54 52 53 53 50 51
Average number of employees ............. 118 140 153 162 193 177 222
Average factored sales per employee ..... $ 6,158 $ 7,246 $ 8,672 $ 9,487 $ 10,370 $ 9,971(6) $10,162(6)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
------------------ ---------------------------
AS
ACTUAL ACTUAL ADJUSTED(8)
------------------ ----------- --------------
BALANCE SHEET DATA: (UNAUDITED)
<S> <C> <C> <C>
Receivables, net ........................ $354,821 $394,780 $394,780
Total assets ............................ 399,471 425,160 425,160
Due to factoring clients ................ 128,578 141,578 141,578
Borrowings .............................. 227,260 244,754 224,794
Due to Affiliates and other liabilities 10,293 3,585 3,585
Shareholders' equity .................... 33,340 35,243 55,203
</TABLE>
- ------------
(1) The results of operations of the Company are included in the consolidated
Federal income tax returns filed by Capital Bancorp, the parent of
Capital Bank. Capital Bank, the Company's sole shareholder, allocates
income taxes to the Company calculated on a separate return basis. See
"Certain Transactions."
(2) Pro forma income statement data reflects (i) the issuance of 2,000,000
shares of Common Stock offered hereby as if such issuance had occurred on
January 1, 1995 or January 1, 1996, at an assumed initial public offering
price of $11.00 per share, net of issuance costs, and the use of the net
proceeds therefrom to repay indebtedness as described in "Use of Proceeds,"
and (ii) reduction of interest expense related to such indebtedness, net of
income taxes, as if the repayment occurred on January 1, 1995 or January 1,
1996.
(3) For purposes of the ratios and data below for 1994 and 1995, factored
sales include certain receivables which are pledged as collateral for those
asset-based loans for which the Company provides factoring-type services.
(4) Computed using average monthly balances.
(5) Computed using average monthly balances of funds employed (receivables
less amounts due to factoring clients).
(6) Computed on an annualized basis.
(7) Computed by dividing 365 by the quotient of (i) factored sales volume for
the periods indicated and (ii) the average monthly accounts receivable
balance for the periods indicated.
(8) Adjusted to give effect to the sale of the Common Stock offered hereby
(at an assumed initial public offering price of $11.00 per share) and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Company provides fee-based services to its clients, including credit
protection, collection and management information services, and also makes
advances to many of its clients. Clients are generally manufacturers of goods
or providers of services in various industries. At the time the Company
purchases the factored receivables, the Company records a receivable and an
offsetting liability "due to factoring client." Advances, which are interest
earning and secured by the client's factored receivables, are recorded by the
Company as reductions to the amounts due to the factoring client for factored
receivables. Cash collections from the client's customers are used to repay
the client's loans. If, as a result of financial inability to pay, a client's
customer fails to pay a receivable that was credit-approved by the Company,
the Company will ultimately bear any loss with respect to such receivable. In
the event of dilution in excess of the unfinanced portion of receivables,
where factored receivables are not fully collected for a reason other than
the customer's financial inability to pay, such as breach of warranty, the
Company will in practice typically need to look to newer receivables of the
client for the collection of the outstanding obligation to the Company and
may not be repaid.
In contrast to the Company's purchase of factored receivables, when the
Company makes an asset-based loan, a client assigns its collateral (usually
accounts receivable and inventory) to the Company. Upon request of the
client, the Company may advance funds to the client as a loan in an amount
based upon the eligible collateral. When funds are advanced to a client, a
loan receivable balance is created, and cash is disbursed. Although the
Company loans funds to the client based on eligible collateral, the Company
provides no credit protection and, accordingly, does not assume the risk of
loss from a client's customers' inability to pay, although the Company may
actually suffer a loss if all sources of repayment fail, including other
collateral and guarantees, if any. In connection with asset-based loans,
instead of a factoring fee, the Company earns a facility fee. Both factored
advances and asset-based loans bear interest at a rate tied to the prime
rate.
The Company was acquired by Capital Bank in May 1985, at which time the
Company had one office in South Florida. The Company acquired its Los Angeles
regional office in August 1989, opened its New York regional office in April
1990 and the North Carolina regional office in May 1995. In September, 1994
the Company also established a healthcare division which provides financing
to various types of healthcare providers and companies involved in the
healthcare industry. The Company has experienced a compounded annual growth
rate in factored sales volume and operating revenues of 24.8% and 23.6%,
respectively, during the period 1991 through 1995, primarily as a result of
the growth in the California and New York regional offices and the opening of
the North Carolina regional office. In addition, the Company's factored sales
volume and operating revenues increased by 27.8% and 24.7%, respectively, in
the three month period ended March 31, 1996 as compared to the same period in
1995.
The Company operates through four regional offices (including the Florida
office) and currently has over 400 clients who generate annual sales from
$500,000 to over $100 million, and services over 100,000 customers of those
clients. The majority of the Company's customers are large national or
regional department store chains or specialty retailers. At March 31, 1996,
the largest amount due from any one customer, a national department store
chain, was approximately $18.8 million.
The Company's factored sales volume can be affected in several ways,
including new clients, client retention or losses, inflation and other
economic conditions. Additionally, fluctuations in the sales dollar volume of
the Company's clients, both positive and negative, have a direct impact on
the Company's factored sales volume and factoring fees. In this regard, the
Company has historically experienced seasonal fluctuations in its factored
sales volume and factoring fees as a result of the seasonality of the sales
of certain of the Company's clients, especially those in the apparel
industry, who typically ship more goods during the four-month period of
August through November in order to fill increased
16
<PAGE>
customer orders in anticipation of "back to school" and the ensuing holiday
season. The Company realized approximately 40% of its annual factored sales
volume during this 4-month period in each of 1994 (approximately $605 million
of $1.5 billion annual factored sales) and 1995 (approximately $757 million
of $2 billion annual factored sales).
Management believes that one of the essential tools in maintaining and
managing growth of the Company is the monitoring of certain key financial
ratios. The Company monitors the key components of its income statement data,
such as factoring fees, net interest income, other income, provision for
credit losses and operating expenses, as a percentage of its factored sales
volume. These key ratios allow the Company to monitor its performance in
achieving its goals of (i) obtaining higher gross margins on factoring fee
income, (ii) increasing fee income as a percentage of cash employed, (iii)
reducing credit losses, (iv) controlling costs, and (v) maximizing return to
its investors. Management also monitors both accounts receivable turnover and
the aging of customers' accounts receivable, with particular emphasis on
amounts greater than 60 days past due.
MONITORING ASSET QUALITY AND CREDIT LOSSES
The monitoring of asset quality is a routine function performed by
management to control credit losses. Monitoring asset quality involves the
periodic review, sometimes daily, of such pertinent financial statistics as
the aging of the accounts receivable portfolio, accounts receivable turnover,
dilution and charge-offs. The Company's allowance for credit losses is
determined after evaluating the receivables portfolio, current market
conditions, changes in the nature and volume of the portfolio, past loss
experience and other pertinent factors.
Set forth below are those ratios and statistics utilized by management in
monitoring asset quality for the five years ended December 31, 1995 and the
three month periods ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- ------------ --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for credit losses .......... $2,550 $3,150 $2,645 $2,235 $2,235 $ 450 $1,100
Charge-offs net of recoveries ....... $1,348 $3,164 $2,663 $2,618 $1,028 $ 206 $1,397
Allowance for credit losses .......... $2,189 $2,175 $2,157 $1,774 $2,981 $2,018 $2,684
Accounts receivable turnover in days 53 54 52 53 53 50 51
Accounts receivable past due more
than 60 days ......................... 6.72% 6.08% 4.85% 4.69% 3.21% 4.15% 4.66%
Provision for credit losses as a
percentage of factored sales ......... 0.31% 0.30% 0.20% 0.15% 0.11% 0.10% 0.20%
Net charge-offs to factored sales ... 0.16% 0.30% 0.20% 0.17% 0.05% 0.05% 0.25%
Non-accruing advances ................ $ 965 $1,083 $ 385 $ 739 $2,184 $ 293 $2,436
Non-accruing advances as a
percentage of funds employed ....... 0.98% 1.01% 0.28% 0.44% 0.94% 0.14% 0.94%
</TABLE>
The Company regularly reviews its outstanding accounts receivable and
other extensions of credit, such as advances to clients, to determine the
adequacy of its allowance for credit losses. Factors such as the level of
related credit balances of clients and the impact of economic conditions on
the creditworthiness of the Company's clients and the client's customers are
given significant consideration in determining the adequacy of the Company's
allowance for credit losses. The Company's methodology for calculating its
reserve for doubtful accounts has remained consistent for the periods shown
above, and includes a specific and general component. Specific reserves are
established for receivables and client advances which the Company's
management deems to be wholly or partially uncollectible. The
17
<PAGE>
general reserve represents 0.75% of those receivables (other than healthcare
receivables which have a lower general reserve) that are not specifically
reserved for but for which the Company has provided credit guarantees.
The provision for credit losses as a percentage of factored sales
decreased from 0.31% in 1991 to 0.11% in 1995, reflecting the Company's
improved loss experience over that period and positive economic trends that
benefited the Company's clients and their customers. The provision as a
percentage of factored sales increased to 0.20% in the first quarter of 1996,
reflecting a higher net charge-off rate. Management anticipates that the
provision for credit losses during the remainder of 1996 will be higher than
during 1995 and more consistent with the Company's historical experience.
Net charge-offs as a percentage of factored sales ranged from 0.16% to
0.30% in the 1991-1994 period, reflecting normal credit losses consistent
with historical experience. Net charge-offs as a percentage of factored sales
declined to 0.05% in 1995 as a result of higher recoveries and fewer
bankruptcies that affected the Company. The net charge-off percentage
increased to 0.25% in the first quarter of 1996 as a result of the charge-off
of several large items, including $600,000 related to the bankruptcy of a
large Northeastern regional chain store and $200,000 related to a single
client loan, $74,000 of which was recovered subsequent to March 31, 1996.
Management anticipates that net charge-offs during the remainder of 1996 will
be higher than during 1995 and more consistent with the Company's historical
experience.
Non-accruing advances as a percentage of funds employed have remained
below 1.00% from January 1, 1993 to March 31, 1996, ranging from 0.14% to
0.94% during such period. Management believes that fluctuations in
non-accruing advances within this range are a normal part of the Company's
ongoing business and are not significant. Non-accruing advances increased by
$200,000 from December 31, 1995 to March 31, 1996, as a result of the
Company's placement of a single loan of approximately $1.5 million on
non-accrual during such period, which was subsequently paid-off with no loss
of principal, partially offset by the repayment of the largest non-accrual
advance at December 31, 1995. This advance was approximately $1.4 million at
December 31, 1995, and the subsequent repayments resulted in a net charge-off
of approximately $126,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Net income increased from approximately $1.88 million for the three month
period ended March 31, 1995 to approximately $1.90 million for the comparable
period in 1996, a 1.1% increase, primarily as a result of an increase in the
Company's provision for credit losses which offset the increase in revenues.
Operating revenues increased from approximately $7.7 million for the three
month period ended March 31, 1995 to approximately $9.6 million for the
comparable period in 1996, a 24.7% increase, primarily attributable to the
increase in the Company's factored sales volume, and the resulting increase
in interest income and factoring fees. Factored sales increased from
approximately $441.2 million for the three month period ended March 31, 1995
to approximately $564.0 million for the three month period ended March 31,
1996, an increase of 27.8%, with factoring fees increasing by 21.0% from
approximately $4.6 million for the three month period ended March 31, 1995 to
approximately $5.5 million for the comparable period in 1996. These increases
were attributable to continued growth of the Company's New York and
California offices and the opening of the Charlotte, North Carolina office in
May 1995, as well as the business generated by the Company's healthcare
division.
Although the Company experienced increased factoring fee income as a
result of increased factored sales, factoring fee income as a percentage of
factored sales declined from 1.03% for the three months ended March 31, 1995
to 0.98% for the three months ended March 31, 1996. This decline was
primarily the result of lower factoring fees charged to high volume clients
in the New York market and a lower fee structure, partly because of high
volume clients, in the Charlotte market. The Company typically receives lower
factoring fees from high volume clients because, among other reasons, high
18
<PAGE>
volume clients do not have the same servicing needs as smaller clients,
requiring less labor intensive services to be performed by the Company, and
because there is increased competition for such clients' business. The New
York office accounted for 53.0% of the Company's factored sales volume for
the quarters ended March 31, 1995 and March 31, 1996.
Net interest income increased from approximately $2.5 million for the
three months ended March 31, 1995 to approximately $3.0 million for the
comparable period in 1996, a 23.1% increase, principally as a result of an
increase of $54.2 million in average outstanding client advances for the
three months ended March 31, 1996 as compared to the same period in the prior
year. Net interest income was also favorably impacted by continued interest
expense reductions achieved through the issuance of additional Certificates
under the Securitized Financings initiated by the Company in June 1994. In
particular, as a result of the Company's issuance of an additional $50
million in Certificates in July 1995, the proceeds of which were used to pay
down the Capital Facility, the Company was able to reduce the higher interest
debt (approximately 8.25% at March 31, 1996) outstanding under the Capital
Facility. At March 31, 1996, there were $175 million of Certificates
outstanding bearing interest at LIBOR plus 1.25% (approximately 6.63% at
March 31, 1996, excluding annualized transaction costs of 0.37%). The Company
intends to continue to use the Securitized Financings as a principal funding
source for its traditional factoring activities, to the extent available.
Letter of credit and other fee income increased from approximately
$350,700 for the three months ended March 31, 1995 to $753,800 for the three
months ended March 31, 1996, an 115.0% increase, primarily due to an increase
in letter of credit fees of approximately $101,200 or 67.8% for the three
month period ended March 31, 1996 as compared to the comparable period in
1995. In addition, other fee income increased by $301,933 for the quarter
ended March 31, 1996 as compared to the quarter ended March 31, 1995.
Operating expenses as a percentage of operating revenues increased from
53.3% to 55.2% for the three month period ended March 31, 1996 as compared to
the three month period ended March 31, 1995. This increase was primarily the
result of the increase in salaries and office expenses related to the opening
of the Company's North Carolina office in May 1995.
The provision for credit losses increased from $450,000 for the three
months ended March 31, 1996 to approximately $1.1 million for the three
months ended March 31, 1996. This increase is primarily attributable to an
increase in outstanding accounts receivable, and a $200,000 charge-off on a
single client, $74,000 of which was recovered subsequent to March 31, 1996.
In addition, recoveries during the three month period ended March 31, 1995
were approximately $110,000 greater than recoveries during the comparable
period in 1996. Provisions for credit losses as a percentage of factored
sales increased to 0.20% at March 31, 1996 as compared to 0.10% for the
comparable period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net income increased from approximately $6.1 million during 1994 to
approximately $8.7 million for 1995, a 42.6% increase, primarily as a result
of increased operating revenues generated from increased factored sales.
Operating revenues increased from approximately $27.4 million for 1994 to
approximately $35.3 million for 1995, a 28.5% increase, primarily
attributable to the increase in the Company's factored sales volume, and the
resulting increase in interest income and factoring fees. Factored sales
increased from approximately $1.5 billion for 1994 to approximately $2
billion for 1995, an increase of 30.2%, with factoring fees increasing by
12.4% from approximately $17.4 million for 1994 to approximately $19.5
million for 1995. A significant portion of these increases were attributable
to continued growth of the Company's New York and California offices and the
opening of the Charlotte, North Carolina office, as well as the business
generated by the Company's healthcare division.
Although the Company experienced increased factoring fee income as a
result of increased factored sales, factoring fee income as a percentage of
factored sales has declined from 1.13% for 1994 to 0.98% (1.03% excluding
asset-based lending activities) for 1995. This decline was primarily the
result
19
<PAGE>
of lower factoring fees charged to high volume clients in the New York market
and a lower fee structure, partly because of high volume clients, in the
Charlotte market. The Company typically receives lower factoring fees from
high volume clients because, among other reasons, high volume clients do not
have the same servicing needs as smaller clients, requiring less labor
intensive services to be performed by the Company, and because there is
increased competition for such clients' business. The New York office
accounted for 48.0% of the Company's factored sales volume for 1995, compared
to 53.0% for 1994.
Net interest income increased from approximately $7.3 million for 1994 to
approximately $11.8 million for 1995, a 62.3% increase, principally as a
result of a $57.3 million increase in average outstanding client advances for
1995 compared to 1994. Net interest income was also favorably impacted by
continued interest expense reductions achieved through the issuance of
additional Certificates under the Securitized Financing initiated by the
Company in June 1994. The Company issued an additional $25 million of such
certificates in December 1994, and an additional $50 million in July 1995.
This allowed the Company to reduce the higher interest debt outstanding under
the Capital Facility (approximately 8.75% at December 31, 1995). At December
31, 1995, there were $175 million of Certificates outstanding bearing
interest at LIBOR plus 1.25% (approximately 7.19% at December 31, 1995,
excluding annualized transaction costs of 0.37%).
Letter of credit and other fee income increased from approximately $1.2
million in 1994 to approximately $2.0 million in 1995, a 66.7% increase,
primarily as a result of an increase in letter of credit fees of
approximately $305,000 in 1995 as compared to 1994, and an increase in
overadvance fees of approximately $332,000 in 1995 as compared to 1994. In
addition, fees related to field examinations increased by approximately
$91,000 in 1995 as compared to 1994. Overadvances represent loans to clients
in excess of the factored accounts receivable, substantially all of which are
collateralized by assets other than receivables. All of the foregoing
increases were principally the result of increased factoring volume in 1995.
Operating expenses increased as a percentage of operating revenues,
increasing from approximately 51.5% in 1994 to approximately 52.3% in 1995.
The increase was the result of the opening of the North Carolina office in
May 1995, and increases in salaries and benefits related principally to
increased staff levels in the healthcare division and the hiring of personnel
for the North Carolina office.
The provision for credit losses was approximately $2.2 million in both
1994 and 1995. The provision for credit losses as a percentage of factored
sales declined from 0.15% in 1994 to 0.11% in 1995. The Company's allowance
for credit losses is determined after evaluating the receivables portfolio,
current market conditions, changes in the nature and the volume of the
receivables portfolio and past loss experience. Management believes that the
decline in net charge-offs over such period reflects the Company's policies
and practices of (i) generally refraining from providing factoring services
to certain industries, (ii) carefully screening and selecting new clients,
(iii) maintaining stringent underwriting criteria and using good credit
judgment, (iv) using diligent monitoring procedures and (v) avoiding a
significant concentration in any one client or clients. Although management
attributes this positive trend primarily to the procedures it employs in
monitoring asset quality, which procedures have kept losses on client
advances at negligible levels and customer credit losses at their lowest
level in the past three years, there can be no assurances that such levels
will be sustained by the Company in the future. Non-accruing advances at
December 31, 1995 were approximately $2.2 million compared to approximately
$739,000 at December 31, 1994. This increase was primarily attributable to
advances to a single client, most of which were collected in 1996.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net income increased from approximately $4.3 million in 1993 to
approximately $6.1 million in 1994, a 41.5% increase, primarily as a result
of increased operating revenues generated from increased factored sales.
Operating revenues increased from approximately $23.5 million in 1993 to
approximately $27.4 million in 1994, a 16.9% increase, and was primarily
attributable to a significant increase in the
20
<PAGE>
Company's factored sales, and the resulting increase in factoring fees.
Factored sales increased from approximately $1.3 billion in 1993 to
approximately $1.5 billion in 1994, an increase of 15.8%, with factoring fees
increasing by 13% from approximately $15.4 million in 1993 to approximately
$17.4 million in 1994. A significant portion of these increases was
attributable to continued growth of the Company's New York office.
Although the Company experienced increased factoring fee income as a
result of increased factored sales, factoring fee income as a percentage of
factored sales declined slightly, from 1.16% in 1993 to 1.13% in 1994. This
decline was primarily the result of lower rates for factoring fees
experienced on several large client relationships where expenses as a
percentage of factored sales are also lower.
Net interest income increased from approximately $5.7 million in 1993 to
approximately $7.3 million in 1994, a 28.8% increase, primarily as a result
of a $21.8 million increase in average client advances outstanding in 1994
compared to 1993, and interest expense reductions achieved as a result of the
issuance in June 1994 of $100 million in certificates under the Securitized
Financings. These certificates bear interest at LIBOR plus 1.25% and were
used to (i) repay in full the outstanding balance under a $15 million loan
from an unaffiliated bank, where the Company paid LIBOR plus 1.75%, and (ii)
reduce the amount outstanding under the Capital Facility which bears interest
at the prime rate.
Letter of credit and other fee income increased from approximately $1.1
million in 1993 to approximately $1.2 million in 1994 representing a 10%
increase.
The Company's total expenses increased from approximately $15.7 million in
1993 to approximately $16.4 million in 1994, a 4.2% increase, primarily as a
result of increases in salaries and benefits associated with the growth in
New York and California, as well as operations in the Florida office.
The provision for credit losses decreased from approximately $2.6 million
in 1993 to approximately $2.2 million in 1994, a 15.5% decrease. As a
percentage of factored sales, the provision for credit losses declined from
.20% in 1993 to .15% in 1994. The Company's allowance for credit losses is
determined after evaluating the receivables portfolio, current market
conditions, changes in the nature and volume of the receivables portfolio and
past loss experience.
LIQUIDITY AND CAPITAL RESOURCES
Since June 1994, the Company has relied upon an asset securitization
program, the Securitized Financings, as its principal source of funding. This
funding is supplemented by the Capital Facility and, more recently, the Other
Bank Facility.
Through March 31, 1996, the trust created in connection with the
Securitized Financings had issued three series of asset-backed certificates
(each, a "Certificate") aggregating $175 million under the Securitized
Financings, including $100 million in June 1994, $25 million in December 1994
and $50 million in July 1995. All of the Certificates were issued to life
insurance companies. Initially, the Certificates were rated "AA" by Duff &
Phelps Credit Rating Company and "A" by Fitch Investors Services, Inc.
Approximately one year after its initial rating, Fitch Investors Services,
Inc. upgraded its rating of the Certificates to "AA". The scheduled maturity
date of the Certificates corresponding to each series is December 1999 ($100
million), June 2000 ($25 million), and January 2001 ($50 million),
respectively. The Certificates issued under each series bear interest at
LIBOR plus 1.25% before transaction costs (approximately 7.19% at December
31, 1995 and 6.63% at March 31, 1996, excluding annualized transaction costs
of 0.37% during such periods). Interest is payable monthly. However, an early
amortization event will occur if the Company fails to satisfy certain
financial covenants, including, among others, maintenance of consolidated net
worth in excess of $18.5 million and a tangible equity ratio of at least 6%.
In addition, there are other covenants relating to the collateral, including
required levels, maximum dilution and delinquency ratios and minimum
subordination levels. The Company may continue to use the Securitized
Financings for funding, provided eligible Advances are available for
21
<PAGE>
transfer to the trust created to accommodate the Securitized Financings (the
"Trust") for future funding through new series. Generally, all of the
Advances made by the Company, with the exception of those made by its
healthcare division, as well as certain asset-based loans, are eligible for
transfer to the Trust. As of March 31, 1996, the Company had transferred to
the Trust Advances aggregating nearly $224 million. Additionally, in
connection with any additional secured indebtedness to be incurred by the
Company, the Securitized Financings require that all additional secured
lenders enter into an intercreditor agreement with the holders of the
Certificates and the trustee of the Trust. The Securitized Financings permit
future purchases to the extent that the Company generates eligible Advances.
The Company used all of the funding it has obtained through the Securitized
Financings to (i) repay in full the outstanding balance under a $15 million
loan from an unaffiliated bank, where the Company paid interest of LIBOR plus
1.75%, and (ii) pay down the indebtedness under the Capital Facility.
In May 1996, the Company, through its direct wholly-owned subsidiary CF
One, Inc., raised $10 million through the issuance of an aggregate of $10
million of subordinated notes which are collateralized by subordinated
certificates issued in connection with the Company's Securitized Financings
(which are held by CF One, Inc.) These notes, which are due and payable in
July 2001, bear interest at an annual fixed rate of 7.95% and are rated "BBB"
by both Duff & Phelps Credit Rating Company and Fitch Investors Services,
Inc. Through the issuance of such notes, the Company obtained additional
financing while utilizing the existing collateral structure of the Company's
Securitized Financings, without having to encumber additional assets of the
Company.
Under the Capital Facility, the Company also has a $125 million unsecured
revolving line of credit with Capital Bank, the Company's sole shareholder,
pursuant to which the Company had outstanding borrowings of approximately
$69.8 million at March 31, 1996. The indebtedness under the Capital Facility
bears interest at the prime rate, as published in The Wall Street Journal
(8.25% at March 31, 1996), is subject to annual review by Capital Bank each
June and is due on demand. The Facility has been in place since 1985 and
historically has been renewed for one-year periods in June of each year.
Interest under the Capital Facility is payable monthly. The Company generally
has used the Capital Facility to make Advances to its clients. The net
proceeds of this offering will be used to reduce the Company's indebtedness
under the Capital Facility.
In March 1996, the Company entered into the Other Bank Facility, a
revolving credit facility with an unaffiliated bank in the amount of $40
million which was closed in April 1996. Indebtedness under the Other Bank
Facility will be secured by Advances not transferred to the Trust or eligible
for transfer to the Trust, most of which were made by the Company's
healthcare division or were asset-based loans, as well as all of the
equipment used by the Company in its operations. In order for the Other Bank
Facility to be fully funded, the Company would have to pledge an amount in
excess of $57 million in Advances. The indebtedness under the Other Bank
Facility may not exceed 70% of the value of the Advances pledged by the
Company as collateral for such indebtedness. The Company currently has
borrowings of approximately $22 million outstanding under the Other Bank
Facility. The indebtedness under the Other Bank Facility bears interest at a
rate of LIBOR plus 2.15%, payable monthly. The indebtedness under the Other
Bank Facility matures upon termination in March 1999, although it will be
automatically renewed for additional one year periods unless the Company or
the lender terminate it. The Other Bank Facility contains certain financial
covenants and ratios, including those relating to the Company's debt to net
worth (no less than 1 to 1), profitability ($5.2 million of annual
consolidated net income) and positive net cash flows (more than $1 per
quarter). Funds borrowed under the Other Bank Facility were used by the
Company to pay down indebtedness under the Capital Facility, and to fund
certain of the Company's healthcare financing activities and asset-based
lending activities.
In addition to the continued availability of the above financing, the
Company's future liquidity will continue to be dependent upon its ability to
collect the accounts receivables purchased from its clients. Of the Company's
approximately $401.5 million of accounts receivable outstanding at March 31,
1996, approximately $169.5 million have balances exceeding $1 million. These
customers are primarily large national or regional department store chains or
specialty retailers. At March 31, 1996, the largest
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amount due from any one customer, a national chain store, was approximately
$18.8 million. In addition, the Company's accounts receivable turned over in
an average of 53 days during 1995 and 51 days during the three months ended
March 31, 1996.
The Company had no material commitments for capital expenditures as of
March 31, 1996. The Company has signed a letter of intent to purchase a
specialized financial services company, subject to negotiation of a
definitive agreement and several other conditions. If the acquisition is
consummated, the Company would use the Capital Facility to fund the
acquisition. Although the Company has no present plans for other
acquisitions, the Company would consider appropriate potential acquisitions
as and if they arise. The Company would need to utilize the above financings
and potentially other financings to fund any such acquisitions.
Management believes that it has the corporate infrastructure in place to
support its earnings growth for the foreseeable future. Management also
believes that funds available under the Company's current credit facilities
(assuming such facilities are renewed or replaced with similar facilities)
and cash flow from operations will be sufficient to satisfy the Company's
working capital requirements for at least 12 months after this offering.
EFFECTS OF INFLATION
The Company believes that inflation has not had a material impact on its
results of operations.
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BUSINESS
GENERAL
The Company is a specialized financial services company principally
engaged in providing receivables-based commercial financing and related
fee-based credit, collection and management information services. The
Company's clients are primarily small to medium size companies in various
industries, including textile and apparel and furniture manufacturing, and,
recently, entities involved in the healthcare industry. The Company operates
through four offices located in New York City, Los Angeles, Charlotte and its
headquarters in South Florida. In late 1994, the Company began to expand its
asset-based lending business. Management expects healthcare financing and
asset-based lending to contribute significantly to the growth of the Company,
although there can be no assurance that this will be the case. The Company
currently has over 400 clients who generate annual sales of $500,000 to over
$100 million, and services over 100,000 customers of those clients.
The Company generally provides financing to its clients through the
purchase of accounts receivable owed to the Company's clients by the clients'
customers, usually on a non-recourse basis, as well as by guaranteeing
amounts due under letters of credit issued to the Company's clients which are
collateralized by accounts receivable and other assets. The purchase of
accounts receivable is usually known as "factoring" and results in the
payment by the client of a factoring fee, generally equal to 0.5% to 2% of
the factored sales volume. No money is paid to the client at the time the
Company purchases the client's receivables. Instead, the Company records a
liability to the client on its books for the purchase price of the
receivable. Generally, the Company and the client notify the client's
customer to make all payments on the receivable directly to the Company. In
most cases, a client's customers are other commercial entities and the client
does not deal directly with individuals. In healthcare financing, the
client's customers are individuals, but the client's receivables are mostly
from third-party obligors. See "--Healthcare Financing."
The Company guarantees the collection of each client's pre-approved
receivables or receivables from each client's customers with pre-approved
credit lines. Payment for receivables which are credit-approved by the
Company is made to the client after collection from the client's customer or,
if the receivable is not paid based solely on the customer's financial
inability to pay, payment is made to the client within 120 days after the due
date of the receivable. Frequently, the Company also advances funds to its
clients prior to collection of receivables, charges interest on such advances
(in addition to any factoring fees) and satisfies such advances from
receivables collections. All payments to clients are reduced by amounts
outstanding to the Company, such as the factoring fee charged to the client
or any outstanding advances to the client. Interest charged on such advances
is generally equal to 1% to 4% over prime. Management believes that the
generally short-term and floating rate characteristics of its advances and
the floating rate of its financings result in minimal interest rate exposure.
Approximately 30% of the Company's clients use only the credit protection and
management information services offered by the Company in connection with the
purchase of their accounts receivable, and do not obtain advances against the
purchased receivables from the Company.
The Company has grown significantly in size and profitability, with a
compounded annual growth rates in operating revenues and net income of 23.6%
and 50.0%, respectively, during the period 1991 through 1995, and a
compounded annual growth rate in factored sales volume of 24.8% for the same
period. For 1995, the Company's operating revenues, net income and factored
sales volume increased by 28.5%, 42.7% and 30.2%, respectively, over 1994 and
increased by 24.7%, 1.1% and 27.8%, respectively, in the three month period
ended March 31, 1996 as compared to the same period in 1995. The Company's
operating strategy includes (i) managing credit risk to ensure consistent and
stable growth, (ii) increasing market penetration through offices in key
factoring centers, (iii) recruiting and retaining experienced personnel who
use a team approach to provide quality service and (iv) diversifying by
product and industry, especially in healthcare financing, which management
believes has significant growth potential.
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BACKGROUND OF THE COMPANY
Factors was acquired by Capital Bank in May 1985, at which time Factors
had one office in South Florida and total assets of less than $6 million,
compared to total assets of $399.5 million as of December 31, 1995. Factors
grew rapidly during 1985 and the first six months of 1986, but sustained
losses during these periods. In 1986, Factors hired a new management team,
including the current President and Chief Executive Officer of Holding and
Factors and two members of the current senior management team located in
Florida. Factors, under this management, acquired the Los Angeles regional
office in August 1989, which was initially staffed with former officers of
NatWest Commercial Services, Inc., and opened the New York regional office in
April 1990, which was initially staffed with former officers of Bankers Trust
Factors. Factors experienced substantial growth in the early 1990s, and added
several key executive officers. In September 1994, the Company established a
healthcare division and, in late 1994, the Company also began asset-based
lending. The Company opened its Charlotte regional office in May 1995,
initially staffed with former executives of Barclays Commercial Corporation.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of increases in factored sales volume in the
newer offices.
Holding is a wholly-owned subsidiary of Capital Bank, a Florida commercial
bank, which is a wholly-owned subsidiary of Bancorp. Holding was formed in
June 1994 in order to serve as the holding company for Factors and to
accommodate the issuance of asset-backed certificates in connection with the
Securitized Financings which have been issued pursuant to several private
placements . Additionally, in 1994, Holding formed another subsidiary, CF
One, Inc., and Factors formed a subsidiary, CF Funding Corp. Both CF One,
Inc. and CF Funding Corp. were created to accommodate the issuance of the
asset-backed certificates. CF One, Inc. holds subordinated certificates
issued by the Trust, created in connection with the Securitized Financings,
which it purchased with funds contributed to it by Holding. Pursuant to the
Securitized Financings, Advances made by Factors that were collateralized by
third party accounts receivable and, in certain cases, by cash, letters of
credit, inventory or other collateral provided to Factors were sold to CF
Funding Corp., which subsequently transferred the Advances to the Trust. The
Trust issued Certificates, which were sold to institutional buyers through
several private placements. The aggregate amount of Certificates presently
outstanding is $175 million, of which $100 million was issued in June 1994,
$25 million was issued in December 1994 and $50 million was issued in July
1995. Each Certificate evidences an interest in the Trust's assets and the
right to receive the payment of principal in the face amount of the
certificate and interest from the Trust. The Trust's assets consist
principally of the Advances, as well as funds collected or to be collected in
respect of the Advances and the collateral therefor. Factors is responsible
for servicing the Advances owned by the Trust. Subordinated certificates were
also issued by the Trust to CF One, Inc. in connection with each of the
Securitized Financings ($15 million in June 1994; $3.75 million in December
1994, $7.50 million in July 1995). The Company utilized the Securitized
Financings because, among other reasons, it offered the Company a less costly
financing alternative and, under applicable regulatory restrictions, the
Company was unable to increase its borrowings under the Capital Facility.
Although the Company has no present plans to complete any additional
Securitized Financings during the next 12 months, if an opportunity arises
which would allow for any additional Securitized Financings, the Company
would likely seek to issue additional Certificates thereunder.
MARKET FOR COMPANY SERVICES
Traditionally, the factoring client base has consisted of members of the
textile and apparel industries, furniture manufacturers, electronics and home
furnishings organizations, wholesalers, distributors and service
organizations. Approximately 76.0% of the Company's clients are in the
textile and apparel industry and 10.8% are manufacturers of furniture and
home furnishings. Clients who, for various reasons, have insufficient or less
effective in-house staff, equipment or procedures to monitor customers,
manage accounts receivable or protect against credit loss, also use factors
to provide such services. These include both mature and younger companies.
For example, as the retail industry becomes more fragmented due to an
increased number of specialty stores challenging department stores, mass
merchants and discounters, suppliers are faced with a larger universe of
buyers and may
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experience higher costs to maintain their credit and receivables department
and increasing paper flow, requiring more sophisticated systems. As clients
experience these rising costs, credit, collection and management information
services such as those provided by the Company become economically and
operationally more attractive. In addition, manufacturers benefit from
factoring because it allows them to turn inventory more quickly, particularly
if they receive cash advances, which may be used to produce more inventory
that could not have been produced if the manufacturer had waited to be paid
by its customer.
The Company, as well as the factoring industry, has historically
experienced and expects to continue to experience seasonal fluctuations in
its factored sales volume and factoring fees, which generally have been
highest during the period from August through November. A principal reason
for the fluctuation in the Company's factored sales volume and factoring fees
is the seasonality in the sales of certain of the Company's clients,
especially those in the textile and apparel industry, who typically ship more
goods during such 4-month period in order to fill increased customer orders
in anticipation of "back to school" and the ensuing holiday season. The
Company realized approximately 40.0% of its annual factored sales volume in
each of 1994 (approximately $605 million of $1.5 billion annual factored
sales) and 1995 (approximately $757 million of $2 billion annual factored
sales) during this 4-month period. Historical experience also indicates that
the Company's factored sales volume and factoring fees are at their lowest
during the period from December through February. Such seasonal fluctuations
can be seen by a review of the Company's quarterly factored sales volume and
net income for the 3-year period ended December 31, 1995, as set forth below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FULL
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1993 Factored Sales Volume $296,710 $319,767 $341,953 $368,372 $1,326,802
Net Income ............ $824 $991 $1,154 $1,336 $4,305
1994 Factored Sales Volume $328,855 $365,176 $423,884 $419,045 $1,536,960
Net Income ............ $1,128 $1,110 $1,769 $2,085 $6,092
1995 Factored Sales Volume $441,211 $460,407 $561,222 $538,523 $2,001,364
Net Income ............ $1,883 $2,069 $2,524 $2,217 $8,693
</TABLE>
One fast-growing market is healthcare financing, which the Company has
recently entered. Typical clients include hospitals, nursing homes, doctor
groups, home treatment centers, home healthcare service providers, temporary
nursing or staffing services and providers of durable medical equipment.
These entities often have long waits for receivables to be paid, but steady
needs for cash, and, accordingly, are less subject to seasonal changes. See
"--Healthcare Financing."
INDUSTRY OVERVIEW
Financial service companies which compete with the Company are widely
known as factors and typically service retail trade clients with a large
number of customers, requiring intensive customer credit and operational
support. Factoring companies service industries such as apparel, textiles,
shoe, carpeting and furniture, frozen foods, housewares, electronics, toys
and other service-related industries, including hospitals, medical companies
and employment services. Such industries benefit from the use of credit,
collection and management information services such as those provided by the
Company because factoring companies can (i) achieve economies of scale in
evaluating the credit quality of various customers and processing receivables
and (ii) help clients to achieve more stable cash flows and additional credit
facilities.
Factoring has been a method of working capital financing in the United
States for over 200 years. Traditionally, the industry has focused on the
purchase of receivables in the apparel and furniture
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industries, but recently, new industries, including healthcare providers,
have begun factoring. The factoring industry has undergone considerable
consolidation over the past several years; as a result, the industry is
characterized by a small number of very large factors operating nationally,
with a multitude of small companies generally operating on a local or
regional basis.
In a recent survey, the largest fourteen factoring companies reported
volume in 1995 of $60.9 billion, an increase of 48% over reported volume in
1988. The Company had a 3.3% share of this reported volume for 1995.
STRATEGY
The Company provides fee-based services to its clients, including credit,
collection and management information services, and also makes advances to
its clients. Each of the Company's regional offices is staffed with a
business development manager, who has the primary responsibility for
generating new business. Potential new clients are often identified from (i)
referrals by previous and existing clients, accountants and lawyers, (ii)
direct mail efforts and (iii) direct telemarketing efforts. The Company also
attempts to expand its network through (i) mailings and magazine and trade
journal advertisements to increase its name recognition, (ii) cultivating its
existing referral relationships and (iii) soliciting additional referral
relationships. Since the Company opened its Charlotte office in 1995,
management believes that it has a network in place to meet the needs of its
target client base in the key markets for factoring services. Additional
expansion and growth is contemplated through product diversification, such as
through healthcare financing, as well as asset-based lending.
Management believes that the Company's growth has been primarily
attributable to the following operating strategies:
/bullet/ MANAGEMENT OF CREDIT RISKS. The Company manages credit risks
associated with collection of accounts receivable and advances to
clients primarily by (i) conducting extensive financial and business
due diligence on both clients and their customers before entering
into a factoring arrangement with a client or establishing credit
limits for customers, (ii) adhering to written guidelines set forth
in a Loan and Credit Policy Manual distributed to all credit and
collection employees, and (iii) monitoring outstanding accounts
receivable and advances on a daily basis in order to alert the
Company to potential problems in a timely manner.
/bullet/ INCREASED MARKET PENETRATION. The Company believes that it has
been able to increase market penetration by servicing a wide range
of clients nationally through its regional offices located in key
factoring centers. In addition, by providing its clients with
personalized, flexible cost-efficient and effective service, the
Company allows clients to be more responsive to their customers and
to devote more time to the management of other aspects of their
business.
/bullet/ EXPERIENCED PERSONNEL WHO USE A TEAM APPROACH. Management
believes that the quality of service provided to its clients is a
critical factor to the Company's growth. In order to provide quality
services, the Company strives to recruit and retain management and
other personnel with significant industry experience, as well as a
commitment to client service. The Company's account executives,
credit officers and operations officers work together under the
supervision of management to service the Company's clients. As a
result of this strategy, the Company's clients and the customers of
such clients interact with experienced personnel working as a team.
/bullet/ DIVERSIFICATION BY PRODUCT AND INDUSTRY. As part of its operating
and growth strategy, the Company offers different variations and
combinations of its traditional products and services to clients
and has recently expanded into healthcare financing and
asset-based lending. Asset-based lending, in particular, provides
the Company a vehicle to finance clients who may not need its
other services and who have different financial needs than
general factoring clients. Although the Company has a high
concentration of clients in the textile and apparel industry and
furniture manufacturing industry, the Company provides services
to companies in various industries. In
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<PAGE>
addition to traditional factoring clients, the Company now
provides accounts-receivable financing to various clients in the
healthcare industry. Diversification provides the Company with a
potential client base that has significant growth potential,
which may be serviced from its existing offices.
FACTORING ARRANGEMENTS
FACTORING AGREEMENT
After the Company has completed a financial and business analysis on a
potential client and its customers, the Company will enter into a factoring
agreement with approved clients. Many of these factoring agreements provide
for advances to be made by the Company based on a client's receivables. The
factoring agreement typically appoints the Company as the client's sole
factor for all accounts receivable, generally for a term of one year. The
Company can usually terminate the agreement at any time upon 30 days' prior
written notice to the client.
Once the factoring agreement has been executed, the Company will purchase
the client's accounts receivables for the face amount of the receivables,
less certain specified discounts, including the Company's factoring fee, and
other deductions. No money is paid to the client upon the purchase of the
receivables. Instead, the Company records a liability on its books for the
purchase price of the receivable. Generally, the Company and the client
notify the customer to make all payments for the receivable directly to the
Company. In most areas, a client's customers are other commercial entities
and the client does not deal directly with individuals. In healthcare
financing, the client's customers are individuals, but the client's
receivables are mostly from third-party obligors.
The Company guarantees the collection of each client's pre-approved
receivables or receivables from each client's customers with pre-approved
credit lines. Payment for the receivable is made to the client after
collection from the customer or, in the event the collection of the
receivable was guaranteed by the Company and the receivable was not paid
based solely on the customer's financial inability to pay, payment is made to
the client within 120 days after the due date of the receivable. If the
customer fails to pay the receivable for any reason other than financial
inability to pay, such as a dispute regarding defective merchandise, the
Company has no obligation to pay the client for the receivable,
notwithstanding guarantee of the receivable by the Company. All payments to
clients are reduced by amounts outstanding to the Company, such as the
factoring fee charged to the client or any outstanding advances to the
client.
At the time the Company purchases the client's accounts receivable, the
client becomes obligated to pay the Company a fee, generally equal to 0.5% to
2.0% of the gross amount of the receivable (not reduced by any discounts that
may have been provided to the customer for early payment). Typically, the fee
is paid from the proceeds of the accounts receivable collections. The
factoring fee paid by the client is not related to the collectibility or
non-collectibility of the purchased accounts receivable. Accordingly, even if
the Company is not obligated to pay for a guaranteed receivable because of a
dispute between the client and its customer, or if payment of the receivable
was not guaranteed by the Company, the factoring fee is due from the client
on such receivable. The factoring fee charged by the Company depends on
various considerations, such as the length of time the receivables are
expected to be outstanding, the monthly volume of receivables generated by
the client, the anticipated administrative costs and the perceived level of
risk. Management believes that its factoring fees remain competitive with
other factoring companies, primarily because of the type of client serviced
by the Company (generally, clients generating less than $50 million in sales)
and the type and quality of services provided to its clients.
SERVICES
The Company offers an interrelated package of financial services which
meets a variety of the business and financing needs of its clients. The
Company's services are designed to allow clients to be
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more responsive to their customers and to devote more time to the management
of other aspects of their business. The Company's clients and the range of
products and services offered distinguish it from certain other commercial
finance companies and asset-based lenders because the Company's main focus is
to provide fee-based services, as well as act as a lending source for many of
its clients. Management believes that it generally can provide these
fee-based services in a more cost-efficient manner than its clients because
of economies of scale.
CREDIT, COLLECTION AND MANAGEMENT INFORMATION SERVICES. The Company
provides its clients with access to credit management, collection and
information services, including certain computerized accounting services, as
well as the equivalent of credit insurance. Each of the Company's regional
offices is staffed with a credit department of between 10 to 30 people. The
credit department, at the direction of the credit officer, conducts the
credit checks on client's customers, analyzes the information and makes a
recommendation as to the amount of credit to be extended, if any. If the
Company approves the credit of the customer, in accordance with written
guidelines established by the Company, then the Company will purchase the
receivable for a fee and guarantee the collection of the receivable based
solely on the customer's financial ability to pay the receivable. If the
Company did not approve the credit of the customer, the Company purchases the
receivable for a fee, but will not guarantee collection of the receivable.
Except with respect to much of the Company's healthcare financing, upon
purchase of the receivable by the Company, the client notifies the customer
that all payments on the receivable should be sent to the Company. The
Company also notifies the customer that it has purchased the receivable and
provides payment instructions to the customer. All payments are sent to the
Company's operations department in Florida. The regional collection
departments monitor the collection of the accounts receivable and make
necessary follow-up calls if payment is not received on a timely basis. Where
necessary, the Company will press for collections. Company staff is trained
to seek collections in a courteous and professional manner so as not to
adversely affect a client's relationship with its customers. In certain
circumstances, the Company will use the services of independent collection
agencies. See "--Monitoring and Oversight Policies--Receivables Portfolio."
In addition, the Company provides various management information services
to its clients, including (i) a monthly analysis that includes an aging
schedule of all open receivables by customer and (ii) information as to the
creditworthiness of its customers.
ADVANCES. The Company may also make advances to its clients, with interest
charged on such advances, generally equal to 1% to 4% over prime. These fees
are generally higher than the fees charged by banks because a factor provides
startup and expanding businesses more financial flexibility, in addition to
credit and other services. This flexibility is primarily due to the fact that
a bank, in making a determination as to the amount that it would advance a
borrower, will customarily be more inclined to review the borrower's net
worth, capital and general financial condition, while a factor will place
greater emphasis on the borrower's collateral, particularly its receivables,
and, correspondingly, the credit-worthiness of its customers. Interest
accrues on the advance from the date the advance is made until the date the
Company would otherwise be obligated to pay the client for purchased
receivables. Advances are made on receivables before they are due or collected
by the Company based upon a stipulated percentage of the net face value of
aggregate outstanding receivables, usually ranging from 75% to 90%. Advances are
payable upon demand. All advances must be approved in accordance with the
written guidelines established by the Company. Such guidelines provide that
advances shall be under a duly authorized line approved at the time an
arrangement is established, taking into account the funding needs and financial
strength of the client and other credit factors, the anticipated performance of
the collateral and within an advance formula applied to eligible accounts
receivable taking into account anticipated dilution. Approximately 70% of the
Company's clients obtain advances from the Company. A number of these clients
might not otherwise qualify for financing of a comparable level from traditional
sources. From time to time, the Company makes advances in excess of a client's
receivables to the extent needed by such client because of the seasonality of
its business or otherwise. These overadvances may be secured by one or more of a
client's inventory, other assets or personal guarantees or may be unsecured.
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<PAGE>
OTHER FINANCING SERVICES. The Company also provides other fee-based
financial services to its clients, including guarantees of commercial letters
of credit and standby letters of credits. Most, if not all of such letters of
credit are issued by Capital Bank. See "Certain Transactions." The Company
may also provide financial guarantees for its clients. Commercial letters of
credit are issued to facilitate certain trade transactions for the clients of
the Company, principally the purchase of goods. Standby letters of credit and
financial guarantees are conditional commitments issued to guarantee the
performance of a client to a third party. The Company guarantees letters of
credit and issues financial guarantees only for clients with which the
Company has factoring or other financing arrangements. Generally, the Company
requires collateral to support these commitments and the collateral held
varies, but may include cash, inventory, real estate and the client's reserve
balance.
MONITORING AND OVERSIGHT POLICIES
RECEIVABLES PORTFOLIO
The quality of purchased receivables is the Company's primary security
against credit losses. Accordingly, the Company conducts an extensive
financial and business analysis on a client prior to entering into a
factoring arrangement with the client, and on the client's customers, prior
to the establishment of credit lines for a customer. The Company focuses on
such items as the age of receivables, the quality of management and the
ethical character of a prospective client's owners, as well as the diversity
of its customer base. The Company generally seeks to avoid situations where a
significant percentage of a prospective client's receivables are from one
customer. Pursuant to Company policy, all factoring arrangements must conform
to the guidelines set forth in the Company's Loan and Credit Policy Manual, a
written manual provided to all credit and collection employees of the
Company. The manual establishes guidelines governing credit criteria, lending
limits and required approvals, as well as documentation requirements related
to such matters as UCC filings, guarantees, subordinations, shipping
documents and financial reporting. There can be no assurance, however, that
adherence to the Company's written guidelines will result in full collection
of the purchased receivables or that such guidelines will be complied with in
every instance. See "--Credit Loss Policy and Experience."
Each of the Company's regional offices is staffed with one or more field
examiners who visit the office of each potential client for diligence
purposes. In certain situations, the Company will also use the services of
independent certified public accountants to assist the field examiners. In
addition to on-site visits, the Company's field examiners will review current
financial statements and business references of the client and personal
financial statements of the principals of the client and its major
shareholders. The Company's field examiners also conduct periodic field
examinations of and visits with clients to continue to learn about the
client's operation. The Company generally requires business plans for
start-up ventures. Additionally, each of the Company's regional credit
departments makes routine random telephone calls and mails written requests
to customers to verify the existence and the terms of receivables purchased
from clients and obtains shipping evidence for all invoices purchased, as
well as remaining in communication with the client.
After the necessary financial and business information has been collected
and reviewed, if the Company intends to enter into a factoring arrangement
with the proposed client, a written proposal of the terms of the proposed
factoring arrangement is prepared. The proposal includes, among other things,
(i) the amount of the factoring fee to be charged, (ii) anticipated accounts
receivable purchases to be generated by the client and (iii) the interest
rate to be charged on advances, if applicable. All new factoring arrangements
are approved by the Company's President and the respective regional manager.
If the factoring arrangement provides for advances to the client against
purchased receivables, additional approvals are required. See "--Client
Advances" below.
Each of the Company's clients is serviced by a team of Company personnel.
Clients are assigned to an account executive and credit officer in one of the
Company's four regional offices, and an operations officer in the Florida
executive office. The account executive is the client's primary contact with
the Company. The account executive is responsible for managing the assigned
client relationship, including
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approval of client advances, and obtaining necessary documentation prior to
any advances to the client. Requests for customer credit approvals or
increases in customer credit lines are directed to the credit officer. The
operations officer is responsible for the processing of all receivables,
including application of payments and invoice handling. In addition, the
Company's senior management team will often meet with clients to discuss
problems, if any, and monitor client satisfaction.
Pursuant to the Company's Loan and Credit Policy Manual, the Company
follows certain credit guidelines. Prior to the establishment of a credit
line for a client's customer, the Company conducts a credit check on the
customer and obtains a credit rating for the customer. The Company takes into
consideration the amount of the requested credit line, the customer's credit
rating and satisfaction of internal written guidelines in determining whether
to establish a credit line for the customer. The Company's internal written
guidelines contain certain formulas used by the Company in determining
whether to establish a credit line and which take into account ratings scales
utilized by various credit rating agencies, as well as the length of time a
customer has been in business. If these formulas are not satisfied,
additional information is obtained and reviewed by the Company, including
bank references, trade surveys and financial statements of the customer. The
Company may also conduct on-site visits of the customer's business and
interview the customer's management team. All credit lines over $250,000
require either executive officer or combined executive officer and director
approval, depending on the amount of the credit line. The Company may also
assume the credit risk of a single credit transaction for a client's
customer. Generally, the same credit check procedures are followed in such
transactions.
The Company assumes the credit risk only on receivables for which written
approval has been provided by the Company. The Company also reserves the
right to withdraw a credit approval if the Company believes a customer's
credit standing has become impaired before actual delivery of merchandise or
rendering of services by the Company's client. Credit approvals are limited
to the specific terms provided by the client to the Company and can be
withdrawn if the terms of the sale are changed. If a dispute relating to
goods or services rendered by the client to its customer arises, the credit
approval on the receivable is negated. If sales are made by the client to a
customer without credit approval or in excess of any credit approval, any
payments made by such customer on outstanding receivables will be applied
first to outstanding credit-approved receivables on the books of the Company.
The Company monitors whether receivables are paid according to their
terms. Daily aging reports are generated by the Company and reviewed by the
regional credit department staff and the account executive responsible for
the account. If payment is not received on its due date, follow-up contact is
made with the client's customer in accordance with written procedures
established by the Company. During this follow-up contact, the Company seeks
to determine the cause of the delay in order to take appropriate action at an
early stage. The status of overdue accounts and other relevant information is
reported to each client monthly, or sooner, if appropriate. The Company's
average accounts receivables turnover rate was 53 days for 1994 and 1995 and
51 days during the three months ended March 31, 1996. The Company may receive
payments, from time to time, that it is unable to match against specific
outstanding invoices. The Company generally notifies the payor when
unidentifiable payments or portions thereof are received. If the payor does
not respond within 90 days, the Company generally records the unallocated
credits as income. The Company maintains an allowance for unallocated credits
recorded as income which may be subsequently repaid based upon its historical
experience. This allowance is also available for amounts that may be payable
to governmental authorities for property that is abandoned. There can be no
assurance that the allowance will be sufficient to meet all such future
claims.
The Company periodically uses the services of independent collection
agencies to assist it in the collection of accounts receivable more than 90
days past due. The Company's policy is to charge-off accounts receivable once
they have been placed with a collection agency. Collection agencies charge,
on the average, a 20% fee of the delinquent account collected. On occasion,
the Company initiates litigation to recover payment of the receivable.
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As security for the accounts receivable purchased, the Company obtains
blanket first liens on a client's receivables, and may also obtain personal
guarantees and liens (which may be subordinate to other liens) on other
assets of the client, including cash, tax refunds, inventory, real estate and
equipment. In addition, the Company arranges for periodic reviews of public
records in order to monitor the filing of any subsequent liens which could
impair the value of receivables in which the Company has an interest.
CLIENT ADVANCES
Prior to making any advances to a client on accounts receivable, the
Company will conduct additional business and financial analysis on the
client. The typical written credit analysis sets forth (i) the purpose for
the advance, (ii) security to be provided for the advance, such as personal
guarantees from principals of the client and subordination arrangements,
(iii) the rate structure to be charged and projected income to be earned by
the Company, (iv) prior experience with the client if the client has
previously had a relationship with the Company or Capital Bank, (v) the
client's history, organization and operations, (vi) bank and trade
information on the client, (vi) financial information of the client and
(viii) future plans and projections of the client. In addition to the written
credit analysis, the account executive assigned to the account reviews a
factoring status report on the client, which sets forth the client's monthly
sales and accounts receivable volume, along with collection information on
the receivables.
Based upon a review of the credit analysis and factoring status report,
the account executive will make a recommendation as to whether or not the
advance is reasonable in relation to the value of the client's outstanding
receivables. All advances against purchased receivables must be approved by
no less than four officers of the Company, two of whom are generally the
account executive and head of client administration from the originating
office and two in the Company's executive offices in Florida, providing
another level of control in the advance process.
Outstanding advances to clients are reviewed on a daily basis and on a
monthly basis at monthly portfolio meetings attended by the President, or his
designee, and the regional managers (or their designees). At the monthly
portfolio meetings, senior management evaluates the Company's outstanding
advances and receivables in order to identify potential problems. The
meetings also allow senior management to evaluate the performance of their
account executives, who have the responsibility of managing their client's
outstanding advances and receivables.
CREDIT LOSS POLICY AND EXPERIENCE
The Company regularly reviews its outstanding accounts receivable and
other extensions of credit, such as advances to clients, to determine the
adequacy of its allowance for credit losses. Factors such as the level of
related credit balances of clients and the impact of economic conditions on
the creditworthiness of the Company's clients and the client's customers are
given significant consideration in determining the adequacy of the Company's
allowance for credit losses. The Company's methodology for calculating its
reserve for doubtful accounts has remained consistent for the period
commencing in 1991 and continuing through March 1996, and includes a specific
and general component. Specific reserves are established for receivables and
client advances which the Company's management deems to be wholly or
partially uncollectible. The general reserve represents 0.75% of those
receivables (other than healthcare receivables which have a lower general
reserve) that are not specifically reserved for but for which the Company has
provided credit guarantees.
The provision for credit losses as a percentage of factored sales
decreased from 0.31% in 1991 to 0.11% in 1995, reflecting the Company's
improved loss experience over that period and positive economic trends that
benefited the Company's clients and their customers. The provision as a
percentage of factored sales increased to 0.20% in the first quarter of 1996,
reflecting a higher net charge-off rate. Management anticipates that the
provision for credit losses during the remainder of 1996 will be higher than
during 1995 and more consistent with the Company's historical experience.
Net charge-offs as a percentage of factored sales ranged from 0.16% to
0.30% in the 1991-1994 period, reflecting normal credit losses consistent
with historical experience. Net charge-offs as a
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percentage of factored sales declined to 0.05% in 1995 as a result of higher
recoveries and fewer bankruptcies that affected the Company. The net
charge-off percentage increased to 0.25% in the first quarter of 1996 as a
result of the charge-off of several large items, including $600,000 related
to the bankruptcy of a large Northeastern regional chain store and $200,000
related to a single client loan, $74,000 of which was recovered subsequent to
March 31, 1996. Management anticipates that net charge-offs during the
remainder of 1996 will be higher than during 1995 and more consistent with
the Company's historical experience.
At the time a receivable is purchased an anticipated payment date is
recorded and is subsequently used to identify past due receivables.
Receivables which have been identified as past due will not be written-off
if, in the opinion of management, collection from the customer, client or
realization on the collateral held, if any, is likely. As of December 31,
1995 and March 31, 1996, approximately $7.0 million and $10.7 million,
respectively, of receivables, representing 2.2% and 2.9%, respectively, of
outstanding receivables as of such date, were 90 days or more past the
payment date anticipated at the time of purchase and had not been
written-off.
Accrual of interest income is discontinued on advances to clients when the
loan balance, including interest, is considered impaired and exceeds the
estimated value of the collateral securing the advance. At December 31, 1994
and 1995 and March 31, 1996, the Company had discontinued its accrual of
interest income on approximately $739,000, $2.2 million and $2.4 million,
respectively, of client advances. In addition, at December 31, 1994 and 1995
and March 31, 1996, approximately $48,000, $134,000 and $105,000,
respectively, of such client advances were deemed to be uncollectible by the
Company.
The credit and market risks associated with guaranteeing commercial
letters of credit and standby letters of credit and issuing financial
guarantees are generally managed in conjunction with the Company's accounts
receivable collection activities and are subject to normal credit policies,
financial controls and risk limiting and monitoring procedures. Commercial
letters of credit are generally for a short commitment period. The risk
involved in guaranteeing standby letters of credit and issuing financial
guarantees is similar to the risk involved in advancing funds to clients. At
December 31, 1995 and March 31, 1996, the Company had approximately $22.6
million and $30.2 million, respectively, of letters of credit and financial
guarantees outstanding.
HEALTHCARE FINANCING
The Company provides healthcare financing and factoring services to
hospitals, nursing homes, doctor groups, home treatment centers, home
healthcare provider services, temporary nursing or staffing services and
providers of durable medical equipment through its Capital Healthcare
Financing division. Healthcare businesses financed by the Company generally
have annual net sales of at least $1 million or are anticipated to grow to
that size shortly. Financing is provided as to bona fide and medically
necessary goods or services that have been provided to a patient for which a
receivable is due with no contingencies. For transactions to be financeable,
fees claimed by the client are to be reasonable and customary and the patient
must be covered by a third party obligor, although, in limited circumstances,
the Company will consider financing private pay receivables if they represent
a small percentage of overall receivables. The Company does not generally
finance workers' compensation claims or, medical/legal (personal injury),
dental and chiropractic claims. At December 31, 1995 and March 31, 1996, the
Company had approximately $16.3 million and $25.6 million, respectively, in
healthcare factored receivables outstanding, in addition to approximately
$11.0 million and $17.4 million of healthcare asset-based loans outstanding
at December 31, 1995 and March 31, 1996, respectively. Approved third party
payors include Medicare, Medicaid, preferred provider organizations, private
insurance carriers, Blue Cross/ Blue Shield and corporate employee coverage
for self-administered healthcare plans.
The minimum term for a healthcare financing contract is one year. Fees
include origination and due diligence fees of between 1% and 5% of the
initial line and a monthly monitoring fee of .35% to 2%,
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with the possibility of a guaranteed minimum monitoring fee. The annual
interest rate on advances ranges from 2% over prime to 4% over prime.
Advances may be up to 85% of the net receivable amount from the financed
receivables. The client usually pays for periodic audits and legal expenses
to close the transaction.
In order to obtain healthcare financing from the Company, generally the
same steps must be followed as with the Company's factoring clients. A
business plan, current financial statements, receivables aging, resumes of
the principals and references are generally required. Once accepted, clients
must file claims with third party payors on the appropriate forms and assign
such claims to the Company. The Company posts the claim to its monitoring
system and, thereafter, closely monitors the collection by the client on a
daily basis. In the case of Medicare and Medicaid claims that must be paid
directly to the provider of the service, the Company, the client and the
client's bank enter into an agreement pursuant to which payments on account
of such claims are made directly to a lockbox account to which the Company
and the client have access and thereafter, are immediately swept out of such
account into the Company's account. In either case, the Company provides
credit monitoring services as well as periodic accountings to the client.
Advances are based upon claims assigned to the Company by the client.
The benefits of healthcare financing to the Company's clients are similar
to the benefits obtained by the Company's factoring clients. Healthcare
clients maximize their ability to monitor patient accounts. In addition, they
receive immediate cash for accounts receivable which can be injected into the
business to, among other things, increase purchasing power, improve and
increase patient services or reduce expenses and increase patient revenues.
ASSET-BASED LENDING
The Company began to expand its asset-based lending activities in late
1994. The Company's asset-based loans range from $300,000 to $6 million and
are primarily secured by accounts receivable and, to some extent, inventory.
Such loans bear interest at annual rates ranging from 1% over prime to 6%
over prime. Most of such loans originate from the Company's California and
Florida offices. At December 31, 1995 and March 31, 1996, the Company had
asset-based loans outstanding aggregating approximately $38 million and $33.3
million, respectively, including loans to healthcare clients of approximately
$11.0 million and $17.4 million at the end of such periods.
The Company makes asset-based loans to companies who may not need its
other services and who have different financial circumstances than factored
clients. In underwriting such loans, the Company pays more attention to the
borrower's financial stability and creditworthiness, rather than that of the
borrower's customers. In making such loans the Company competes primarily
with financial institutions and other asset-based lenders, such as commercial
finance companies. See "--Competition."
MANAGEMENT INFORMATION SYSTEMS
Factoring is a systems intensive business because of the high volume of
transactions required to be entered and the matching with such transactions
of cash payments, chargebacks and other adjustments. In 1990, the Company
purchased an IBM AS400 computer and developed software tailored to the
requirements of the Company's accounting, receivables collection, monitoring
and oversight functions. The system permits the Company to generate payment
histories and analyses with respect to its clients' customers, to generate
daily aging of accounts receivable reports, to accumulate accounting
information and other data useful for credit analysis, to produce information
used in marketing and to respond to account and management inquires. The
Company continues to add enhancements and updates to its management
information systems. In 1995, the Company acquired and installed a software
package to administer and process transactions of the clients of its
healthcare division. In March 1996, the Company installed the latest IBM
AS400 model. The Company expects that this new hardware will provide the
Company with additional capacity to handle the Company's increased
transaction volume.
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COMPETITION
The Company competes with numerous banks, financial institutions,
commercial finance companies and other factoring companies with greater
financial and other resources than the Company. The four largest factors in
the United States, CIT Group, BNY Financial Corp., NationsBanc Commercial and
Heller Financial, control approximately 62% of the factored sales volume in
the United States, as compared to 3.3% of United States factored sales volume
for the Company in 1995, according to a recent survey. The Company competes
with the largest national factors, as well as other national factors and also
competes with other regional factoring companies, all of whom target similar
clients as the Company and most of whom have operated in the markets serviced
by the Company for a longer period of time than the Company. Certain factors
compete with the Company for certain types of accounts. For example, one
factor may provide services only to textile mills, while another may provide
services only to furniture manufacturers. The Company competes primarily on
the basis of service, not price, even with respect to higher volume clients
to whom the Company may provide lower fee structures than to the Company's
typical clients. The Company generally does not seek to compete when price is
the sole or primary criterion for potential clients' selection of a factor.
Future competition is expected to be based primarily on the quality and level
of service provided and the ability to respond to the changing credit
environment and demands of many factoring clients. The Company believes that
it is well-positioned to respond to these needs.
REGULATION
As a result of the Company's ownership by Capital Bank, a Florida
commercial bank, which in turn is owned by Bancorp, a bank holding company,
the Company is affected by certain regulations normally applicable only to
banking institutions. The Company is subject to periodic examination by
representatives of the Florida Department of Banking and Finance, the FDIC
and the FRB. Additionally, because the Company's immediate parent, Capital
Bank, is a Florida-chartered, FDIC-insured bank, the business activities of
the Company are generally limited under applicable FDIC regulations to those
activities that are permissible for national banks. Although factoring and
the other businesses in which the Company currently engages are authorized
activities for national banks, there can be no assurance that business
opportunities the Company might wish to pursue in the future will be
authorized activities for Capital Bank and therefore might be unavailable to
the Company because of its regulated status as a subsidiary of Capital Bank.
Federal bank regulations require the Company's parent, Capital Bank, and
its parent, Bancorp, to meet two capital-to-assets ratios. The first such
ratio, referred to as the "risk-based" capital test, assigns a weight (or
percentage) to assets by categories of risk established by the federal
regulators. Under this test, Capital Bank's and Bancorp's "tier one capital"
(consisting essentially of their common stockholders' equity and minority
interests, if applicable) is required to equal at least 4% of their
risk-weighted assets. Also as part of the "risk-based" capital test, all of
Capital Bank's and Bancorp's capital (tier one or otherwise) must equal or
exceed 8% of aggregate risk-weighted assets.
The second ratio is referred to as the "leverage" test. Under this test,
each of Capital Bank and Bancorp must maintain tier one capital equal to or
exceeding 3% of total assets, or such higher level as may be imposed by
federal regulators. The regulators have publicly indicated that a bank
should, in practice, maintain a leveraged capital-to-assets ratio of at least
1% to 2% above the 3% minimum. In 1993, in order to address comments made by
the State of Florida banking examiners, Capital Bank adopted a resolution to
maintain a leveraged capital-to-assets ratio of not less than 6% and not to
pay dividends in excess of 75% of earnings on a quarterly basis.
The following table sets forth Capital Bank's and Bancorp's regulatory
capital ratios as of December 31, 1995 and March 31, 1996 and after giving
effect to the sale of the 2,000,000 shares of Common Stock offered hereby at
an assumed offering price per share of $11.00 and the use of the net proceeds
therefrom as set forth in "Use of Proceeds" (using March 31, 1996
information).
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<TABLE>
<CAPTION>
BANCORP CAPITAL BANK
-------------------------------------- --------------------------------------
3/31/96 3/31/96
-------------------------------------- --------------------------------------
12/31/95 ACTUAL AS ADJUSTED 12/31/95 ACTUAL AS ADJUSTED
----------- --------- -------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Tier One Capital Ratio 9.99% 10.13% 11.31% 9.58% 9.65% 10.84%
Total Capital Ratio .. 11.24% 11.36% 12.53% 10.83% 10.88% 12.05%
Leverage Ratio ........ 7.25% 7.64% 8.57% 6.97% 7.29% 8.23%
</TABLE>
PROPERTIES
The Company provides services to its clients through offices located in
Fort Lauderdale, Florida; Los Angeles, California; New York City, New York;
and Charlotte, North Carolina. The Company acquired the office building
located in Fort Lauderdale, Florida from an affiliate in December 1990. The
Company leases approximately 14,000 square feet of office space in Los
Angeles pursuant to a ten-year lease that terminates in September, 2005, and
provides for annual base rental payments of approximately $218,600 through
August 2000 and $257,500 during the remaining term of the lease. The Company
leases approximately 12,300 square feet of office space in New York pursuant
to a five-year sublease that terminates in December 1999 and provides for
annual base rental payments of approximately $337,700 through December 1996
and $368,400 during the remaining term of the lease. The Company leases
approximately 9,800 square feet of office space in North Carolina pursuant to
a five year lease that terminates in April 2000 and provides for annual base
rental payments of approximately $196,430.
TRADEMARKS, SERVICE MARKS AND LICENSES
In 1991, Bancorp registered the name "Capital Factors" with the United
States Patent and Trademark Office. Since the registration of such service
mark, Bancorp has authorized the Company's uninterrupted and unrestricted use
of the name "Capital Factors." No agreement regarding the Company's use of
such service mark exists between Bancorp and the Company and no fee is paid
by the Company in connection with such use. The service mark is effective
until December 2001, unless sooner terminated as provided by law. In
addition, the Company has recently applied for certain other service marks to
be used by it in connection with its business operations. The Company's
management does not believe that its business is dependent upon the use of
any particular service mark, trademark, license or similar property.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
THE COMPANY
From time to time, the Company has been a party to lawsuits and claims,
including lender liability claims, which management considers incidental to
normal operations. The Company is currently a party to one lawsuit that was
dismissed after trial. The plaintiff is currently appealing the dismissal.
Management, after review, including consultation with counsel, believes that
any ultimate liability which could arise from this current lawsuit would not
materially affect the financial position of the Company.
BANCORP AND CAPITAL BANK LEGAL PROCEEDINGS
Beginning in approximately August 1992, the Audit Committee of Capital
Bank began to investigate certain allegations made by a then-officer and
director of Capital Bank (who is currently the beneficial owner of
approximately 10% of Bancorp common stock) against Abel Holtz, Capital Bank
and possibly other family members of Abel Holtz. At the time, Abel Holtz was
the Chairman of the Board, Chief Executive Officer and President of Bancorp
and Capital Bank and the Chairman of the Board of the Company, as well as a
principal shareholder of Bancorp. He currently owns slightly less than 10% of
Bancorp's outstanding shares. See "Principal Shareholders." The allegations
related primarily to alleged wrongful conduct by Abel Holtz with respect to
(i) the settlement of two sexual harassment claims brought against Capital
Bank and Abel Holtz, (ii) the reimbursement of certain travel and
entertainment expenses by Capital Bank and (iii) certain charitable donations
made by Capital Bank.
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In connection with this investigation, the Audit Committee filed a Report
of Apparent Crime with certain governmental authorities. Thereafter, members
of the Audit Committee, together with three other directors of Capital Bank,
attempted to call a special meeting of the Board of Capital Bank to, among
other things, remove Abel Holtz as the Chief Executive Officer and as
Chairman of the Board of Capital Bank. Prior to such meeting, the holders of
a majority of Bancorp stock, either in person or by proxy, took certain
action by written consent in lieu of a meeting pursuant to which Bancorp's
Board of Directors was expanded from seven to ten directors, three new
directors were elected and certain sections of Bancorp's bylaws were amended.
Holders of a majority of Bancorp stock voted in favor of the foregoing,
including the outstanding shares of Bancorp that were subject to irrevocable
proxies in favor of Abel Holtz. Holders of certain of the shares covered by
these proxies notified Abel Holtz that, in their view, the irrevocable
proxies previously given to Abel Holtz were invalid and purported to revoke
them. Abel Holtz advised the Company that he believed that the irrevocable
proxies continued to be valid. Subsequent to the Bancorp meeting, Bancorp, as
the sole shareholder of Capital Bank, by written consent removed four
directors of Capital Bank, including a member of the Audit Committee. This
corporate action occurred prior to the special meeting called by certain
directors of Capital Bank, including those directors removed by such action.
Thereafter, the Audit Committee (including the removed director) instituted
Case No. 92-2520-Civ-Graham in the United States District Court, Southern
District of Florida against Abel Holtz, Capital Bank, Bancorp and certain
directors of Bancorp (the "Audit Committee Action"). The Audit Committee
Action sought, among other things, to (i) obtain declaratory and injunctive
relief to prevent alleged interference with the Audit Committee and to
invalidate the corporate actions undertaken by the shareholders of the
Company and Capital Bank on October 19, 1992, (ii) declare that Abel Holtz
and Daniel Holtz unlawfully interfered with the investigative work of the
Audit Committee and that Abel Holtz was unlawfully in de facto control of
Capital Bank, its assets and its business, and (iii) declare invalid the
actions allegedly taken in the self interest of Abel Holtz.
Certain of the governmental authorities having regulatory oversight for
Capital Bank and Bancorp, as well as a Federal Grand Jury, investigated these
matters among others. Bancorp was advised that neither it nor Capital Bank
were targets of the Federal Grand Jury investigation, although Bancorp
ultimately learned that Abel Holtz was a target. The independent accounting
firm of Arthur Andersen & Co. was engaged to conduct an independent
investigation of the matters investigated by the Audit Committee.
The Audit Committee Action was voluntarily dismissed by the Audit
Committee on November 24, 1992. On January 28, 1993, after conducting an
investigation and reviewing the report from Arthur Anderson & Co., both the
Audit Committee and Capital Bank's Board of Directors adopted resolutions
which ratified the settlement of the sexual harassment claims, determined
that there was no basis for requiring Abel Holtz to contribute to such
settlement and concluded that certain travel and entertainment expenses and
charitable contributions reviewed by the Audit Committee were ordinary
business expenses of Capital Bank.
On October 25, 1994, Bancorp was advised that the above-described Federal
Grand Jury investigation terminated when Mr. Holtz entered a guilty plea to
one count of giving misleading testimony in 1991 to a Federal Grand Jury in
violation of 18 United States Code Section 1503, with respect to the purpose
of certain payments made by Capital Bank, the Company and certain related
parties to a public official. Bancorp was advised that this plea resolved all
pending criminal investigations against Mr. Holtz being conducted or
supervised by the United States Attorney's Office for the Southern District
of Florida and that no charges would be filed against either Bancorp or
Capital Bank with respect to the matters that were the subject of the Grand
Jury investigation. On January 20, 1995, Abel Holtz was sentenced to a term
of confinement of 45 days, to be followed by two years of supervised release,
including 4 1/2 months of house confinement, to be followed by community
service during the supervised release. Abel Holtz was also fined $20,000 and
assessed certain costs.
In approximately April 1994, Abel Holtz, pursuant to the terms of the
irrevocable proxies, designated Fana Holtz, his wife, as successor
proxyholder with respect to most of the irrevocable
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proxies within his control and transferred the remainder of such proxies in
January 1995. Fana Holtz has designated her son, the current Chairman of the
Board, President and Chief Executive Officer of Bancorp and Capital Bank,
Daniel Holtz, as her successor proxyholder in the event of her death. On
October 7, 1994, Abel Holtz resigned from all positions with Bancorp and it
subsidiaries.
On February 8, 1995, certain shareholders, including the removed member of
the Audit Committee, commenced a derivative action against Bancorp, Daniel M.
Holtz, the Chairman of the Board, President and Chief Executive Officer of
Bancorp, Fana Holtz, the Vice Chairman of the Board, Javier Holtz, a director
of Capital Bank, and Abel Holtz (the "Derivative Action"). The Derivative
Action is entitled NATHAN J. ESFORMES, STANLEY I. WORTON, M.D., AND LEONARD
WIEN, AS INDIVIDUAL SHAREHOLDERS AND ON BEHALF OF ALL OTHER SHAREHOLDERS OF
CAPITAL BANCORP V. ABEL HOLTZ, FANA HOLTZ, DANIEL M. HOLTZ, JAVIER J. HOLTZ,
CAPITAL BANK AND CAPITAL BANCORP., Circuit Court for the 11th Judicial
District in and for Dade County, Florida, Case No. 95-02515. The Derivative
Action was subsequently amended to add, among other things, the remaining
members of the Board of Directors as defendants. Through the Derivative
Action, the plaintiffs have alleged that certain defendants engaged in a
series of illegal activities causing harm to Bancorp and Capital Bank,
including (i) the settlement of the sexual harassment claims, (ii) the
payment of excessive compensation and separation payments, (iii) the
appointment of unqualified family members as officers, (iv) the withholding
of information and (v) the misappropriation of Capital Bank funds for
personal uses. The plaintiffs also alleged that such individuals engaged in a
series of activities designed to improperly increase or maintain their
interest in, and control of, Bancorp, including (i) the unlawful use of
proxies, (ii) the prevention of investigations and shareholder meetings,
(iii) the unlawful alteration of the composition of Bancorp's Board of
Directors and (iv) the failure to obtain approval for a change in control.
The Board of Directors of Bancorp established an independent committee to
investigate the allegations contained in the Derivative Action and to retain
independent legal counsel. Thereafter, the plaintiffs challenged the
independence of the committee. Upon motion of the defendants, the complaint
was dismissed without prejudice in November 1995 for containing legal
argument, which the court ruled to be improper. The Court allowed for the
filing of an amended complaint, but stayed the proceedings and any required
response to an amended complaint until the independent committee has a
reasonable period of time to complete its review. The plaintiffs appeal of
the Court's decision to stay the proceedings was denied. In May 1996, the
plaintiffs moved for a rehearing or, alternatively, for clarification of the
Court's denial of such appeal. In June 1996, the plaintiff's motion for
rehearing was denied.
An amended complaint was filed in December 1995 containing substantially
the same allegations. A new director and former director of Bancorp were
added as defendants, while another former director of Bancorp was removed as
a defendant. The plaintiffs are seeking, on behalf of Bancorp, unspecified
monetary damages, including treble damages, reasonable costs and attorneys'
fees, and injunctive relief (i) precluding Fana Holtz from voting shares for
which she has proxies, (ii) setting aside the February 27, 1995 annual
shareholders' meeting, (iii) reinstating two former directors, (iv)
precluding the current Board from taking any action and (v) returning certain
shares to Bancorp. No monetary relief is sought from Bancorp and no count
specifically seeks relief from Bancorp.
The Committee recently issued a report concluding, based on its
investigation and the investigation of its counsel and accounting firm, that
no legal basis for pursuing the Derivative Action exists and that the
Derivative Action is not in the best interests of Bancorp or Capital Bank
and, as such, should be dismissed. Bancorp is filing a motion to lift the
stay entered by the court with respect to the Derivative Action and intends
to move to dismiss the Derivative Action. Bancorp has advised the Company
that it expects the plaintiffs in the Derivative Action to strongly oppose
this motion.
Also on February 8, 1995, a shareholder of Bancorp, who was one of the
members of the 1992 Audit Committee who was removed from Capital Bank's Board
of Directors, commenced an individual action against Bancorp, Daniel Holtz,
Fana Holtz, Javier Holtz and Abel Holtz (the "Individual Action"). Such
action alleged that the defendants, other than Bancorp, breached fiduciary
duties owed
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to the plaintiff by, among other things, improperly using proxies to vote
shares of Bancorp owned by the plaintiff and another shareholder to engage in
improper activity and to promote their personal interest to the detriment of
the plaintiff. The Individual Action is entitled STANLEY I. WORTON, M.D. AND
NATHAN ESFORMES V. ABEL HOLTZ, FANA HOLTZ, DANIEL HOLTZ, ALEX HALBERSTEIN AND
CAPITAL BANCORP, Circuit Court for the 11th Judicial District in and for Dade
County, Florida, Case No. 95-02520-CA-09. In support of the complaint, the
plaintiff asserted many of the same allegations contained in the Derivative
Action. Thereafter, the plaintiff filed an amended complaint pursuant to
which an additional plaintiff was added (both plaintiffs are named plaintiffs
in the Derivative Action) and all the existing and certain former directors
of Bancorp were added as defendants. The amended complaint alleged that
certain of the defendants unlawfully solicited proxies for the February 27,
1995 annual shareholders' meeting and that the actions taken at this meeting,
including the reduction in the size of the Board, were invalid. The amended
complaint also sought a court order directing Bancorp to hold a shareholders'
meeting on or before May 28, 1995 to elect a board of directors (although the
required papers to have a hearing on the matter have not been filed).
Upon motion of the defendants in the Individual Action, the amended
complaint was dismissed without prejudice for containing legal argument,
which the court ruled to be improper. The Court dismissed with prejudice the
plaintiff's request to terminate the proxies granted by the non-plaintiff
shareholder. The Court allowed for the filing of an amended complaint, but
stayed the proceedings as to certain claims until the independent committee
has a reasonable period of time to complete its review. The Court also
indicated that certain counts of the complaint did not properly plead the
elements for injunctive relief. An amended complaint was filed in December
1995 containing substantially the same allegations. The plaintiffs seek
unspecified monetary damages and costs and, in addition to the injunctive
relief requested in the Derivative Action, plaintiffs seek relief regarding,
among other things, the voting and/or termination of certain proxies, the
establishment of a constructive trust for certain shares and options, the
holding of a shareholders meeting, the return to one of the plaintiffs of his
percentage of any shares obtained by members of the Holtz family because of
the control group created by the proxies and the reinstatement of one of the
plaintiffs to the Board of Directors and invalidation of the actions of the
current Board. Plaintiffs also seek declaratory relief invalidating the
proxies and former actions with respect to which the proxies were voted. The
plaintiffs have not indicated that they are seeking any monetary relief from
Bancorp other than costs. Bancorp has filed a motion to dismiss the two
counts of the complaint in the individual action in which it is named and has
moved to stay certain other counts of the complaint on the grounds that those
claims are derivative.
Bancorp has advised the Company that it has not determined whether, if
asked, it would indemnify directors and former directors named in these
actions if the plaintiffs are successful, although it is currently advancing
the legal expenses of the outside directors who were named as defendants.
Such defendants have agreed to repay Bancorp for all or any portion of such
advances which they are ultimately found not to be entitled to pursuant to
applicable law.
The Company is not a party to either of the current actions and management
does not believe that the outcome of such actions will have a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
ADMINISTRATIVE PROCEEDINGS
As of February 14, 1996, Daniel Holtz, Chairman of the Board, President
and Chief Executive Officer of Bancorp, Fana Holtz, the Vice-Chairman of the
Board, and Javier Holtz, a director of Capital Bank, owned and/or had the
power to vote, approximately 7%, 40% and 4% (51% in the aggregate),
respectively, of Bancorp's Common Stock (including shares of Common Stock
subject to options exercisable by such individuals within 60 days). Fana
Holtz, Daniel Holtz, and Javier Holtz have advised Bancorp that they had
discussions with the Florida Department of Banking and Finance (the "FDBF")
as to whether one or more of them was required under Florida law to file an
application to acquire and/or maintain a controlling interest in Capital Bank
through their ownership and control of Bancorp. Fana Holtz, Daniel Holtz and
Javier Holtz have advised Bancorp that, as a result of those
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discussions, they both individually and as a group, have voluntarily filed an
application to acquire and/or maintain a controlling interest in Bancorp,
although they do not believe such an application is legally required. Fana
Holtz, Daniel Holtz and Javier Holtz are also having discussions with the FRB
as to whether a change of control notice is required under federal law. The
plaintiffs and another shareholder in the pending litigations described in
"Legal and Administrative Proceedings--Bancorp and Capital Bank Legal
Proceedings" have filed a Notice of Intent to Appear and Petition for a
Formal Administrative Hearing with the FDBF in connection with the
disposition of the Florida application opposing the change in control notice
and application and raising many of the same issues raised in the court
proceedings. A hearing date has been set for August 1996. It cannot presently
be determined what effect, if any, the FDBF's action on the application and
the discussions with the FRB will have on the Company although if the control
applications are denied, regulatory authorities could take various actions,
including requiring that one or more members of the Holtz family divest
sufficient shares of Bancorp so as not to have legal control of Bancorp as
defined by regulatory authorities.
Abel Holtz is subject to the restrictions of Section 19 of the Federal
Deposit Insurance Act as a result of entering a guilty plea to one count of
giving misleading testimony in 1991 to a Federal Grand Jury in violation of a
federal statute, with respect to the purpose of certain payments made by
Capital Bank, the Company and certain related parties to a public official.
As a result, he is precluded from owning or controlling, or otherwise
participating in, the affairs of Bancorp and Capital Bank without regulatory
approval. Abel Holtz has advised Bancorp that he has orally agreed with the
FDIC not to vote his shares in Bancorp at the present time. Federal bank
regulatory authorities are also examining and investigating whether Abel
Holtz and some or all of the persons discussed in this section, including
Bancorp and its subsidiaries, as well as possibly other persons, are in
compliance with applicable change in control laws and Section 19. To date,
the Company is unaware of any conclusions which may have resulted from these
inquiries.
EMPLOYEES
At March 31, 1996, the Company had 228 employees, of which 111 were
employed in the Florida office, including 29 professional staff and 82
clerical staff, 45 were employed in the California office, including 22
professional staff and 23 clerical staff, 44 were employed in the New York
office, including 23 professional staff and 21 clerical staff, and 28 were
employed in the North Carolina Office, including 10 professional staff and 18
clerical staff. None of the Company's employees are covered by a collective
bargaining agreement and the Company considers its employee relations to be
good.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and nominees for director of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----- --- -------------------------
<S> <C> <C>
John W. Kiefer ...... 49 President, Chief Executive Officer and Director
Stephen J. Donohue . 51 Executive Vice President--New York Regional Manager
James L. Morrison .. 52 Executive Vice President--California Regional Manager
Michael J. Sullivan 47 Senior Vice President--North Carolina Regional Manager
Dennis A. McDermott 45 Senior Vice President--Chief Financial Officer
John B. Apgar ....... 42 Senior Vice President--Healthcare
Javier J. Holtz .... 35 Executive Vice President and Chairman of the Board
Daniel M. Holtz .... 36 Director
Stephen N. Ashman .. 47 Director
Ronald S. Chase .... 51 Director
Harold L. Oshry .... 73 Director
Bruce Raiffe ........ 38 Director
Jack Listanowsky ... 48 Director
Cynthia Cohen Turk . 48 Director Nominee
Norman G. Einspruch 63 Director Nominee
</TABLE>
Mr. Kiefer has served as the Company's President and Chief Executive
Officer and as a director since April 1987. Mr. Kiefer has also served as a
Senior Vice President of Bancorp since January 1987 and as a director of
Capital Bank since October 1992. From 1984 to 1986, Mr. Kiefer served as
Senior Vice President--Regional Manager of Barclays American/Commercial Inc.
and served as Vice President from 1981 to 1984.
Mr. Donohue has served as the Company's New York Regional Manager since
April 1990, and was promoted from a Senior Vice President to an Executive
Vice President in January 1992. From 1970 to April 1990, Mr. Donohue was
employed by Bankers Trust Factors in various positions, including Manager of
Client Portfolio.
Mr. Morrison has served as the Company's California Regional Manager since
August 1989, and was promoted from a Senior Vice President to an Executive
Vice President in January 1992. From 1984 to August 1989, Mr. Morrison served
as Vice President--Regional Manager of the Los Angeles office of NatWest
Commercial Services, Inc.
Mr. McDermott has served as the Company's Senior Vice President--Chief
Financial Officer since July 1991. Prior to joining the Company, Mr.
McDermott served as Chief Accounting Officer from April 1990 to June 1991 at
the request of the Resolution Trust Company with several troubled financial
institutions, including AmeriFirst Bank, American Pioneer Savings Bank, and
Centrust Bank. Mr. McDermott served as Vice President--Chief Financial
Officer of Ambassador Financial Group, Inc., a savings and loan holding
company, from July 1988 to March 1990, and as Executive Vice President--Chief
Financial Officer of Crossland Savings from September 1983 to June 1988.
Mr. Sullivan has served as the Company's Senior Vice President--North
Carolina Regional Manager since March 1995. From August 1994 to February
1995, Mr. Sullivan served as the Head of Business Development for the CIT
Group, the successor to Barclays Commercial Corporation. From November 1981
to February 1994, Mr. Sullivan served as Senior Vice President--Regional
Executive of Barclays Commercial Corporation and, from March 1994 to August
1994, Mr. Sullivan served in the same capacity with the CIT Group. Prior to
that and from June 1975 to December 1980, Mr. Sullivan was International
Credit Director of the B.F. Goodrich Company. Mr. Sullivan performed
independent consulting services from December 1980 to November 1981.
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Mr. Apgar has served as the Company's Senior Vice President--Healthcare
since June 1994. From April 1992 to April 1993, Mr. Apgar was the head of the
new business segment of Tower Financial Corporation. In April 1993, Tower
Financial Corporation filed a petition seeking relief under the United States
Bankruptcy Code. In May 1993, Mr. Apgar was appointed Senior Vice
President--Client Relations--Healthcare Division of Tower Financial
Corporation by the trustee appointed to administer Tower Financial's
bankruptcy estate and served in such position until April 1994. From July
1990 to March 1992, Mr. Apgar was Vice President--New Business of BancBoston
Financial Company, a Trust of Bank of Boston.
Mr. Javier Holtz has served as a director of the Company since August 1987
and as Executive Vice President since November 1994. Mr. Holtz was appointed
Chairman of the Board of the Company in October 1994. In addition, Mr. Holtz
has been employed by Capital Bank since 1983, most recently as an Executive
Vice President. Mr. Holtz has been a director of Capital Bank since 1988. Mr.
Holtz has also served as Senior Vice President of Bancorp since January 1990.
Mr. Holtz is Chairman of the Board of Capital Bank, N.A., Rockville,
Maryland. Mr. Holtz is the brother of Daniel Holtz, a director of the Company
and the Chairman of the Board, President and Chief Executive Officer of each
of Bancorp and Capital Bank, and the son of Fana Holtz, the Vice Chairman of
Bancorp's Board of Directors and the beneficial owner of approximately 40% of
Bancorp common stock, and Abel Holtz, the beneficial owner of approximately
9.1% of Bancorp common stock. See "Principal Shareholders."
Mr. Daniel Holtz has served as a director of the Company from 1985 to 1987
and from 1993 to the present. Mr. Holtz has been a director of Bancorp since
June 1988 and also served as President of Bancorp since February 1994 and as
Chairman of the Board and Chief Executive Officer since October 1994. In
addition, Mr. Holtz has served as President of Capital Bank since October
1991 and as Chairman of the Board and Chief Executive Officer since October
1994. Mr. Holtz was President and Chief Executive Officer of Capital Bank of
California from September 1987 to November 1991 and director from July 1985
until June 1993, when the bank was declared insolvent and closed by the
California Superintendent of Banks. Mr. Holtz is the brother of Javier Holtz
and the son of Fana Holtz and Abel Holtz. See "Principal Shareholders."
Mr. Ashman has been a director of the Company since May 1985. Mr. Ashman
has served as President and Chief Executive Officer of Capital Bank, N.A.,
Rockville, Maryland since November 1991. Mr. Ashman served as Treasurer and
Chief Financial Officer of Bancorp from February 1985 to November 1991, and
as Executive Vice President and Chief Financial Officer of Capital Bank from
February 1985 to November 1991.
Mr. Chase has served as a director of the Company since September 1992.
Mr. Chase has also served as a director of Capital Bank since July 1993. Mr.
Chase has been the President and owner of Chase Holdings & Advisory Services,
Inc., which provides financial advisory services to corporations and
litigation attorneys, since June 1991. In addition, Mr. Chase is the owner
and has served as President of each of RSC Development, Inc., a residential
developer, and CFAT H20, Inc., a water treatment facility, both of which are
located in Ocala, Florida, since approximately November 1993. Mr. Chase is a
certified public accountant who served as Managing Partner for several
offices of Deloitte & Touche, LLP for 14 of his 25 years with the firm. Mr.
Chase also serves as a director of the Greater Miami Neighborhood, Inc., a
not-for-profit affordable housing developer.
Mr. Oshry has served as a director of the Company since September 1992.
Mr. Oshry served as Chairman, President and Chief Executive Officer of
Sandgate Corp., a New York real estate developer, from 1955 until his
retirement in 1985.
Mr. Raiffe has served as a director of the Company since 1993. Mr. Raiffe
has served as the President of Gund, Inc., a toy manufacturer, since March
1993. From 1980 to 1993, Mr. Raiffe served as an Executive Vice President of
Gund, Inc. Mr. Raiffe also serves as a director of the United Cerebral Palsy
Association.
Mr. Listanowsky has served as a director of the Company since 1993. Mr.
Listanowsky has served as the Vice President--Sourcing and Production of The
Limited, Inc. since April 1995. From December
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1989 to May 1995, Mr. Listanowsky served as the Executive Vice President of
Manufacturing and Operations of Liz Claiborne, Inc. Prior to joining Liz
Claiborne, Inc. in 1981, Mr. Listanowsky was the Vice President of
Manufacturing and Operations of SKYR Sportswear from 1974 to 1981.
Ms. Cohen Turk, the President of MARKETPLACE 2000, a consulting firm
providing marketing strategy, product positioning and profit improvement
services since 1990, has been nominated to become a director of the Company
immediately upon the consummation of this offering. From 1987 to 1990 Ms.
Cohen Turk, a certified public accountant, was a partner with the public
accounting firm of Deloitte & Touche LLP. Ms. Cohen Turk is currently a
director of Office Depot, One Price Clothing Stores, Inc., Loehmann's Inc.
and Spec's Music Stores, Inc., all publicly-traded companies.
Norman G. Einspruch, Ph.D., Professor and Chairman of the Department of
Industrial Engineering at the University of Miami, has been nominated to
become a director of the Company immediately upon the consummation of this
offering. From 1977 to 1990, Dr. Einspruch served as Dean of the College of
Engineering at the University of Miami and beginning in 1990, has
served as Senior Fellow in Science and Technology at that university. From
1959 to 1977, Dr. Einspruch served in various capacities with Texas
Instruments Incorporated, including Assistant Vice President, Corporate
Development Manager and Strategic Planning Manager from 1975 to 1977. Dr.
Einspruch is currently a director of Ogden Corporation and Penril DataComm
Networks, Inc, publicly traded corporations. Dr. Einspruch has published
various articles in technical journals and is a Fellow of the Institute of
Electrical and Electronics Engineers.
All directors hold office until the next annual meeting of shareholders of
the Company and until their successors have been duly elected and qualified.
Each officer serves at the discretion of the Board of Directors (and in the
case of Messrs. Kiefer, Donohue and Morrison pursuant to employment
agreements).
DIRECTORS' COMPENSATION
The Company pays all directors a monthly retainer of $1,000 and $250 for
each meeting attended by the director. The Company also reimburses all
directors for all travel-related expenses incurred in connection with their
activities as directors. The Company also paid $94,000 in salary and bonus to
Javier Holtz for his services as Executive Vice President of the Company
during 1995.
In addition, non-officer directors of the Company also have in the past
received options to acquire Bancorp Common Stock for their service on the
Company's Board of Directors. For the 1995 fiscal year, each outside director
of the Company received options to acquire 5,000 shares of Bancorp common
stock. Certain directors who are also officers and/or directors of Bancorp,
Capital Bank and/or the Company received options to purchase shares of
Bancorp common stock. John Kiefer, Javier Holtz and Daniel Holtz received
options to purchase a total of 12,500, 6,000 and 18,000 shares of Bancorp
common stock, respectively, in 1996 for 1995. The grants of such options,
however, reflect compensation for such persons' service with Bancorp and
Capital Bank, as well as with the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Messrs. Chase, Oshry, Listanowsky and Raiffe serve on the Company's Audit
Committee. The Audit Committee's functions include recommending to the Board
of Directors the engagement of the Company's independent certified public
accountants, reviewing with such accountants the plan and results of their
audit of the financial statements and determining the independence of such
accountants. In addition, Messrs. Chase, Oshry, Listanowsky and Raiffe serve
on the Company's Compensation and Benefits Committee, which reviews and makes
recommendations with respect to compensation of officers and key employees,
including the grant of options under the Company's Stock Option Plan, and the
Company's Conflict of Interest Committee, which, among other things, reviews
and makes recommendations with respect to transactions between the Company
and any of its affiliates, including those with Bancorp and Capital Bank.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company, for
services rendered during the past year to the five most highly compensated
officers (the "Named Officers") of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------ ---------------
NUMBER OF
SECURITIES
FISCAL SALARY BONUS OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION($) OPTIONS(1) COMPENSATION($)
- --------------------------- ------ -------- ---------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
John W. Kiefer 1995 275,000 600,000(2) --(3) 12,500 25,084(4)
Chief Executive Officer
Stephen J. Donohue 1995 210,000 262,171 --(3) 3,500 28,142(4)(5)
Executive Vice President,
New York--Regional Manager
James L. Morrison 1995 171,000 162,490 --(3) 3,475 26,294(4)
Executive Vice President,
California--Regional Manager
Michael J. Sullivan 1995 125,577 70,000 --(3) 700 --
Senior Vice President,
North Carolina --
Regional Manager(6)
Dennis A. McDermott 1995 100,000 60,000 --(3) 2,500 1,000(5)
Senior Vice President and
Chief Financial Officer
</TABLE>
- ------------
(1) Represents options to purchase shares of Bancorp common stock granted
under the Bancorp 1992 Stock Option Plan which options were granted in
1996.
(2) Represents a one-time cash bonus of $300,000 which was paid to Mr.
Kiefer at the conclusion of his employment agreement, which agreement
terminated on December 31, 1995, for continuing to be employed until such
termination, as well as a $300,000 bonus based upon the Company's earnings
for the year ended December 31, 1995.
(3) The aggregate amount of perquisites and other personal benefits
provided to such Named Officer is less than 10% of the total annual salary
and bonus of such officer.
(4) Represents the cost of life insurance coverage for Mr. Kiefer and Morrison
and includes the cost of life insurance coverage for Mr. Donohue pursuant to
a split-dollar life insurance policy on the life of the executive. The
Company will be reimbursed for its premium payments at such time as benefits
are paid under the policies or the policies are terminated and the cash
proceeds distributed.
(5) Includes matching contributions to Bancorp's 401(k) plan of $1,500 for
Mr. Donohue and $1,000 for Mr. McDermott.
(6) Mr. Sullivan was not employed by the Company for the full fiscal year.
Represents the period commencing on February 28, 1995 and continuing through
December 31, 1995.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with John W. Kiefer,
the President and Chief Executive Officer of the Company. The employment
agreement with Mr. Kiefer expires in December 2000. Upon execution of the
agreement, Mr. Kiefer received a signing bonus of $250,000 and a $100,000 loan
payable in five equal installments of principal plus all accrued interest
through the date of payment during the term, but due in full upon earlier
termination of the employment agreement. The agreement provides for an annual
base salary to Mr. Kiefer of $300,000 in the first year, subject to adjustment
in the discretion of the Company's Board of Directors or Compensation and
Benefits Committee. Mr. Kiefer will receive a bonus on December 31 of each year
during the term of the agreement if he is then still employed thereon, in an
amount equal to the amount of principal and interest then due under his loan
from the Company. The employment agreement also provides for an annual bonus
based on the Company's success in reaching certain targets for net revenues and
income before income taxes. In the event the targets are reached, the portion of
the bonus relating to net revenues would equal 20% of Mr. Kiefer's salary and
the portion of the bonus relating to income before income taxes would equal 80%
of his salary. Each portion of the
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bonus could be a smaller or larger percentage of his salary depending upon
whether the targets are either not met or exceeded, with the aggregate
maximum in any year being 185% of salary if both targets are doubled. Mr.
Kiefer shall also receive deferred compensation equal to 67% of his salary
for each year that (i) net revenues and income before income taxes exceed
projected net revenues and income before income taxes as set forth in the
Company's 5-year plan, (ii) net revenues increase by 13.5% over net revenues
for the prior year and (iii) income before income taxes increases by 22.5%
over income before income taxes for the prior year. The deferred compensation
shall vest 50% after three years and 25% after each of the fourth and fifth
years, provided that Mr. Kiefer is still employed by the Company, although
the employment condition for vesting will lapse after the 5-year term of the
employment agreement if Mr. Kiefer is employed at that time. If at the end of
the 5-year term, Mr. Kiefer agrees to be employed by the Company for another
five years, then all deferred compensation that has not yet vested shall
immediately vest. In addition, on the effective date of this offering, Mr.
Kiefer will receive options to purchase one (1%) percent of the Company's
Common Stock outstanding after giving effect to such offering at the initial
public offering price, subject to the terms and conditions of the Company's
Stock Option Plan then in effect. Upon the Company's termination of Mr.
Kiefer's employment agreement without cause, Mr. Kiefer shall be entitled to
receive, among other things, (i) base salary through the date of such
termination and (ii) all previous bonuses and a pro-rata portion of the bonus
payable, if any, for the year in which termination occurs, (iii) an
acceleration of the vesting of all deferred compensation and (iv) subject to
mitigation if he obtains subsequent employment, his base salary through the
expiration date of his employment agreement. In the event of a change in
control, Mr. Kiefer shall receive the same compensation as if terminated
without cause except that in lieu of the compensation payable in (iv) above,
Mr. Kiefer shall be entitled to receive a lump sum payment equal to two times
his salary and prior year's bonus if he terminates his employment because of
changes in his employment situation and an additional amount equal to two
times his prior year's deferred compensation, if any, if he is terminated by
the Company without cause within one year after a change in control. Upon
termination for "cause" or upon voluntary resignation, Mr. Kiefer shall be
entitled to receive his base salary through the date of such termination.
Payment of the bonus and deferred compensation in certain years during the term
that would not otherwise be deductible by reason of Section 162(m) of the
Internal Revenue Code of 1986, as amended, is subject to certain approvals,
including shareholder approval. The Company's Compensation and Benefits
Committee may, at its option, defer payment of amounts that would not otherwise
be deductible under Section 162(m) until a time when it would be deductible. The
stock option grant will also be conditioned upon approval of the Compensation
and Benefits Committee and approval of the Company's Stock Option Plan by the
Company's shareholder. The agreement also contains certain non-competition
covenants and covenants against solicitation of clients and employees for a
competitive business.
Factors is a party to an employment agreement with Stephen J. Donohue, the
Company's Executive Vice President and Regional Manager of the Company's New
York office. The Company is negotiating a new agreement with Mr. Donohue,
subject to final approval of the Compensation and Benefits Committee. The new
agreement would expire on December 31, 2000. The existing agreement, which
expires in December 1997, provides for an annual base salary to Mr. Donohue of
$170,000, subject to a 6% increase from the base salary paid in the previous
year as well as an annual bonus based upon the Company's earnings before income
taxes ("EBT") attributable to the Company's New York office. The new agreement
would provide for a base salary of $232,000 in 1996 and $255,000 in 1997, with
minimum annual increases thereafter of 8%. Mr. Donohue would receive a bonus on
December 31 of each year during the term of the agreement if he is then still
employed thereon in an amount equal to the amount of principal and interest
then due under his loan from the Company described below. Pursuant to the
Board's discretion, during the previous two years, Mr. Donohue received 3.0% of
EBT attributable to the New York office. The new agreement would provide for an
annual bonus equal to 3.0% of EBT attributable to the New York office, but not
to exceed twice his base salary. Mr. Donohue was to receive an additional cash
bonus of $250,000 if he was employed by the Company through the expiration date
of the existing employment agreement. Pursuant to the new agreement he would
receive $150,000 of this compensation upon the execution of the new agreements
for his three years of service under the existing agreement. He would also
receive a signing bonus of $125,000 and a $75,000 loan payable in five equal
installments of principal plus all accrued interest through the date of payment
during the term, but due in full upon earlier termination of the employment
agreement.
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Under the new agreement, Mr. Donohue would also receive deferred compensation
equal to 50% of his salary for each year that (i) net revenues for the region
increases by 13.5% over net revenues for the prior year and (ii) income before
income taxes for the New York region increases by 22.5% over income before
income taxes for the prior year. The deferred compensation shall vest 50% after
three years and 25% after each of the fourth and fifth year, provided that Mr.
Donohue is still employed by the Company, although the employment condition for
vesting will lapse after the 5-year term of the employment agreement if Mr.
Donohue is employed at that time. If at the end of the each calendar year during
the term of the employment agreement, provided that Mr. Donohue is still
employed by the Company. Under the new agreement, Mr. Donohue would also receive
deferred compensation equal to 50% of his salary for each year that (i) net
revenues for the region increases by 13.5% over net revenues for the prior year
and (ii) income before income taxes for the New York region increases by 22.5%
over income before income taxes for the prior year. The deferred compensation
shall vest 50% after three years and 25% after each of the fourth and fifth
year, provided that Mr. Donohue is still employed by the Company, although the
employment condition for vesting will lapse after the 5-year term of the
employment agreement if Mr. Donohue is employed at that time. If at the end of
the five-year term, Mr. Donohue agrees to be employed by the Company for another
five years, then all deferred compensation that has not yet vested shall
immediately vest. In addition, upon consummation of this offering, Mr. Donohue
will receive options to purchase 0.5% of the Company's Common Stock outstanding
after giving effect to such offering at the initial public offering price. Upon
the Company's termination of Mr. Donohue's employment agreement without cause,
Mr. Donohue is entitled to receive (i) his base salary through the date of such
termination, (ii) all previous unpaid bonuses and a pro-rata portion of the
bonus payable, if any, for the year in which termination occurs and (iii)
subject to the obligation to seek subsequent employment, his base salary for one
year following termination, but in no event beyond the expiration date of his
employment agreement. Under the new agreement, Mr. Donohue would receive the
compensation set forth in (i) and (ii) above, but his base salary would be paid
through the expiration date of the agreement, subject to mitigation if he
obtains subsequent employment. In the event of a change in control, Mr. Donohue
shall be entitled to terminate his employment agreement in the event of certain
changes in his employment situation. Under the existing agreement, upon Mr.
Donohue's termination of the existing employment agreement as a result of a
change in control, Mr. Donohue is entitled to receive (i) his base salary
through the date of such termination, (ii) all previous unpaid bonuses and a
pro-rata portion of the bonus payable, if any, for the year in which termination
occurs, (iii) his base salary for one year following termination but in no event
beyond the expiration date of his employment agreement and (iv) a portion of his
additional cash bonus. Under the new agreement, Mr. Donohue would be entitled to
the same compensation as in (i) and (ii) above, an acceleration of the vesting
of all deferred compensation, and a lump sum payment equal to two times his base
salary and prior year bonus if he terminates his employment because of changes
in his employment situation and an additional amount equal to two times his
prior year's deferred compensation, if any, if he is terminated by the Company
without cause, within one year of a change in control. Upon termination for
"cause" or upon voluntary resignation, Mr. Donohue shall be entitled to receive
his base salary through the date of such termination. Payment of the bonus and
deferred compensation in certain years during the term that would not otherwise
be deductible by reason of Section 162(m) of the Internal Revenue Code of 1986,
as amended, is subject to certain approvals, including shareholder approval. The
Company's Compensation and Benefits Committee may, at its option, defer payment
of amounts that would not otherwise be deductible under Section 162(m) until a
time when it would be deductible. The stock option grant will also be
conditioned upon approval of the Compensation and Benefits Committee and
approval of the Company's Stock Option Plan by the Company's shareholder. The
agreement would also contain certain non-competition covenants and covenants
against solicitation of clients and employees for a competitive business.
In addition, Factors is a party to an employment agreement with James L.
Morrison, the Company's Executive Vice President and Regional Manager of the
Company's California office. The Company is negotiating a new agreement with
Mr. Morrison, subject to final approval of the Compensation and Benefits
Committee. The new agreement would expire on December 31, 2000. The existing
agreement, which expires in December 1997, provides for an annual base salary
to Mr. Morrison of $140,000, subject to a 6% increase from the base salary
paid in the previous year as well as an annual bonus based upon the Company's
EBT attributable to the Company's California office. The new agreement would
provide for a base salary of $189,000 in 1996 and $210,000 in 1997, with minimum
annual increases of 8% thereafter. Mr. Morrison would receive a bonus on
December 31 of each year during the term of the agreement if he is still then
employed thereon in an amount equal to the amount of principal and interest
then due under his loan from the Company described below. Pursuant to the
Board's discretion, during the previous two years, Mr. Morrison received 3.0% of
EBT attributable to the California office. The new agreement would provide for
an annual bonus equal to 3.0% of EBT attributable to the California office, but
not to exceed twice his base salary. Under the existing agreement, Mr. Morrison
was to receive an additional
46
<PAGE>
cash bonus of $150,000 if he is employed by the Company through the expiration
date of the employment agreement. Pursuant to the new agreement, he would
receive $90,000 of this compensation upon the execution of the new agreement for
his three years of service under the existing agreement. He would also receive a
signing bonus of $125,000 and a $75,000 loan payable in five equal installments
of principal plus all accrued interest through the date of payment during the
term, but due in full upon earlier termination of the employment agreement.
Under the new agreement, Mr. Morrison would also receive deferred compensation
equal to 50% of his salary for each year that (i) net revenues for the
California region increases by 13.5% over net revenues for the prior year and
(ii) income before income taxes for the California region increases by 22.5%
over income before income taxes for the prior year. The deferred compensation
shall vest 50% after three years and 25% after each of the fourth and fifth
years, provided that Mr. Morrison is still employed by the Company although the
employment condition for vesting will lapse after the 5-year term of the
employment agreement if Mr. Morrison is employed at that time. If at the end of
the five-year term, Mr. Morrison agrees to be employed by the Company for
another five years, then all deferred compensation that has not yet vested shall
immediately vest. In addition, upon consummation of this offering, Mr. Morrison
will receive options to purchase 0.5% of the Common Stock outstanding after
giving effect to such offering at the initial public offering price. Upon the
Company's termination of Mr. Morrison's existing employment agreement without
cause, Mr. Morrison is entitled to receive (i) base salary through the date of
such termination, (ii) all previous unpaid bonuses and a pro-rata portion of the
bonus payable, if any, for the year in which termination occurs and (iii)
subject to the obligation to seek subsequent employment, his base salary for one
year following termination, but in no event beyond the expiration date of his
employment agreement. Under the new agreement, Mr. Morrison would receive the
compensation set forth in (i) and (ii) above, but his base salary would be paid
through the expiration date of the agreement, subject to mitigation if he
obtains subsequent employment. In the event of a change in control, Mr. Morrison
shall be entitled to terminate his employment agreement in the event of certain
changes in his employment situation. Under the existing agreement, upon Mr.
Morrison's termination of the existing employment agreement as a result of a
change in control, Mr. Morrison is entitled to receive (i) base salary through
the date of such termination, (ii) all previous unpaid bonuses and a pro-rata
portion of the bonus payable, if any, for the year in which termination occurs,
(iii) his base salary for one year following termination but in no event beyond
the expiration date of his employment agreement and (iv) a portion of his
additional cash bonus. Under the new agreement, Mr. Morrison would be entitled
to the same compensation as in (i) and (ii) above, an acceleration of the
vesting of all deferred compensation, and a lump sum payment equal to two times
his salary and prior year bonus if he terminates his employment because of
changes in his employment situation and an additional amount equal to two times
his prior year's deferred compensation, if any, if he is terminated by the
Company without cause, within one year after a change in control. Upon
termination for "cause" or upon voluntary resignation, Mr. Morrison shall be
entitled to receive his base salary through the date of such termination.
Payment of the bonus and deferred compensation in certain years during the term
that would not otherwise be deductible by reason of Section 162(m) of the
Internal Revenue Code of 1986, as amended, is subject to certain approvals,
including shareholder approval. The Company's Compensation and Benefits
Committee may, at its option, defer payment of amounts that would not otherwise
be deductible under Section 162(m) until a time when it would be deductible. The
stock option grant will also be conditioned upon approval of the Compensation
and Benefits Committee and approval of the Company's Stock Option Plan by the
Company's shareholder. The agreement would also contain certain non-competition
covenants and covenants against solicitation of clients and employees for a
competitive business.
The Company may enter into employment agreements with other executive
officers in the future.
COMPANY STOCK OPTION PLAN
Under the Company's Stock Option Plan (the "Plan"), which will be
effective upon the consummation of this offering, 800,000 shares of Common
Stock will be reserved for issuance upon exercise of stock options. During
the Eighty Percent Period, no more than 200,000 of such options may
47
<PAGE>
be granted without the restrictions set forth below. See "Description of Capital
Stock--Anti-takeover Effects of Certain Provisions of Florida Law and the
Company's Articles of Incorporation and Bylaws." The remaining options, even if
vested, may not be exercised without the written approval of Capital Bank during
the Eighty Percent Period. Such shares will be accompanied by stock appreciation
rights which will become exercisable as determined by the Committee, but in no
event prior to April 15, 2001, and only if Capital Bank does not give approval
to the exercise of the option. The Plan is designed as a means to retain and
motivate key employees and directors. The Compensation and Benefits Committee of
the Board of Directors will administer and interpret the Plan and be authorized
to grant options thereunder to all eligible employees and directors of the
Company, except that no incentive stock options (as defined in Section 422 of
the Internal Revenue Code) may be granted to a director who is not also an
employee of the Company or a subsidiary.
The Plan will provide for the granting of both incentive stock options and
nonqualified stock options. Options will be granted under the Plan on such
terms and at such prices as determined by the Compensation and Benefits
Committee, except that the per share exercise price of incentive stock
options cannot be less than the fair market value of the Common Stock on the
date of grant. The aggregate number of options granted to any one director,
officer or employee may not exceed 35% of the total options available under
the Plan. Each option is exercisable after the period or periods specified in
the option agreement, but no option may be exercisable after the expiration
of ten years from the date of grant. Options granted to an individual who
owns (or is deemed to own) at least 10% of the total combined voting power of
all classes of stock of the Company or its subsidiary must have an exercise
price of at least 110% of the fair market value of the Common Stock on the
date of grant and a term of no more than five years. Options granted under
the Plan are not transferable other than by will or by the laws of descent
and distribution. The Plan also authorizes the Company to make or guarantee
loans to optionees to enable them to exercise their options. Such loans must
(i) provide for recourse to the optionee, (ii) bear interest at a rate no
less than the prime rate of interest, and (iii) be secured by the shares of
Common Stock purchased. The Board of Directors has the authority to amend or
terminate the Plan, provided that no such action may impair the rights of the
holder of any outstanding option without the written consent of such holder,
and provided further that certain amendments of the Plan are subject to
shareholder approval. Unless terminated sooner, the Plan will continue in
effect until all options granted thereunder have expired or been exercised,
provided that no options may be granted ten years after commencement of the
Plan.
The Plan will provide that (i) each director who is not an employee of the
Company and who may be required to meet certain other criteria (a
"Non-Employee Director") will receive, on the date of his or her appointment
as a director or the date of this offering, whichever is earlier (but in no
event earlier than the date of this offering), options to purchase 10,000
shares of Common Stock and, at the annual meeting each year commencing in
1997 (if such person continues to serve as a director of the Company on such
date), an option to purchase an additional 2,000 shares of Common Stock, (ii)
each option granted to Non-Employee Directors will become exercisable as to
be provided in the Plan, although such options granted on the date of this
offering shall be restricted as provided above on a pro-rata basis with all
other options granted on such date, and, thereafter, during the Eighty
Percent Period, all options shall be restricted as provided above, (iii) the
unexercised portion of any option granted to Non-Employee Directors shall
terminate a specified period of time after such director no longer serves on
the Company's Board (or one year in the event of physical or mental
disability or death), except that such period shall not begin until the
restrictions listed above cease, or if the stock appreciation right
accompanying such option becomes exercisable, until such exercisability, and
(iv) the per share exercise price of all options granted to Non-Employee
Directors will be equal to the fair market value of the Common Stock on the
date of grant.
48
<PAGE>
The following table sets forth information with respect to options to be
granted under the Plan upon consummation of this offering to (i) each Named
Officer, (ii) each director and nominee for director, (iii) all executive
officers as a group, and (iv) all other employees of the Company as a group.
All of the options are nonstatutory, are being granted with an exercise price
equal to the offering price, are subject to the consummation of this offering
and are being granted in 1996.
<TABLE>
<CAPTION>
NAME OF GRANTEE OR GROUP NUMBER OF SHARES
- ------------------------- ----------------
<S> <C>
John W. Kiefer ............................... 120,000
Stephen J. Donohue ........................... 60,000
James L. Morrison ............................ 60,000
Michael J. Sullivan .......................... 20,000
Dennis A. McDermott .......................... 40,000
John B. Apgar ................................ 25,000
Javier J. Holtz .............................. 25,000
Daniel M. Holtz .............................. 10,000
Stephen N. Ashman ............................ 10,000
Ronald S. Chase .............................. 10,000
Harold L. Oshry .............................. 10,000
Bruce Raiffe ................................. 10,000
Jack Listanowsky ............................. 10,000
Cynthia Cohen Turk ........................... 10,000
Norman Einspruch ............................. 10,000
All executive officers as a group (7 persons) 350,000
All other employees as a group (80 persons) . 138,250
</TABLE>
BANCORP PENSION PLAN
Currently, all eligible officers of the Company participate in the Bancorp
Employees Pension Plan which was established in 1983 (the "Bancorp Pension
Plan"). The normal retirement age under the Bancorp Pension Plan is the later
of age 65 or the age of the participant on the 5th anniversary of plan
participation. The monthly pension benefit for normal retirement in 1.2% of
average monthly compensation for the 5 consecutive years during the last 10
years of service that produce the highest average salary, plus an additional
0.6% of the portion of the average monthly compensation during these same 5
years in excess of the monthly social security integration level. The entire
monthly pension benefit for normal retirement will be multiplied by each year
of service at normal retirement age, not to exceed 25 years. The Bancorp
Pension Plan provides for early retirement at age 55 with 10 years continuous
employment as well as full vesting of benefits upon termination of employment
before retirement age and after completion of 7 years continuous employment.
In the event of the death of an active participant, the total value of the
decedent's accrued pension benefit will be paid to the designated beneficiary
by the method selected by the beneficiary and approved by the Bancorp Pension
Plan administrator. The benefit will be based upon the years of service and
number of years before normal retirement age. The Bancorp Pension Plan does
not provide for disability benefits. The Company funds the Bancorp Pension
Plan for its proportionate share of the costs of such plan, based on the
number of its employee participants. During 1995, the Company paid $172,090
for its share of the Bancorp Pension Plan's costs. See "Certain
Transactions."
49
<PAGE>
Annual amounts of normal retirement pension payable under the Bancorp
Pension Plan are illustrated in the following table. The illustration assumes
retirement as of December 31, 1995 at the normal retirement age of 65.
<TABLE>
<CAPTION>
FIVE YEAR YEARS OF SERVICE
AVERAGE ---------------------------------------------
COMPENSATION 10 15 20 25
- --------------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C>
$125,000 $21,060 $31,590 $42,120 $52,650
150,000 25,560 38,340 51,120 63,900
175,000 25,560 38,340 51,120 63,900
200,000 25,560 38,340 51,120 63,900
225,000 25,560 38,340 51,120 63,900
250,000 25,560 38,340 51,120 63,900
275,000 25,560 38,340 51,120 63,900
300,000 25,560 38,340 51,120 63,900
</TABLE>
As of December 31, 1995, each of the Named Officers and certain directors
of the Company had credited service (to the nearest whole year) under the
Bancorp Pension Plan as follows:
<TABLE>
<CAPTION>
CREDITED SERVICE
NAME IN YEARS
- ---- -----------------
<S> <C>
John W. Kiefer .......... 9
Stephen J. Donohue ...... 6
James L. Morrison ....... 6
Michael J. Sullivan .... 0
Dennis A. McDermott .... 4
Javier J. Holtz ......... 13
Daniel M. Holtz ......... 13
</TABLE>
In the event that Capital Bank's percentage ownership of the Common Stock
of the Company drops below 80%, it is anticipated that the Company would
adopt its own pension plan. At such time, the officers of the Company with
years of credited service in the Bancorp Pension Plan would transfer such
credit to the Company's pension plan.
BANCORP STOCK OPTION PLANS
Certain of the Company's executive officers and all of the directors also
participate in the Bancorp 1982 Employee Stock Option Plan and/or 1992
Employee Stock Option Plan (collectively, the "Bancorp Plans"). All of the
directors and executive officers of the Company have participated in one or
both of the Bancorp Plans. Messrs. John W. Kiefer, Daniel M. Holtz, Javier J.
Holtz and Ronald S. Chase participate in the Bancorp Plans as a result of
their relationship with Bancorp and Capital Bank and will continue to
participate in such plans after the consummation of this offering. Mr.
Kiefer's participation also relates to his employment by the Company. The
participation of the officers of the Company in the 1992 Employee Stock
Option Plan may continue after the consummation of this offering so long as
the Company remains a subsidiary of Bancorp or Capital Bank.
50
<PAGE>
The following table sets forth certain information with respect to options
to purchase shares of common stock of Bancorp granted under the Bancorp Plans
to the Named Officers for the 1995 fiscal year and represents all options
granted by Bancorp to such Named Officers for the period. In accordance with
rules of the Securities and Exchange Commission, the table also describes the
hypothetical gains that would exist for the respective options based on
assumed rates of annual compounded stock appreciation of 5% and 10% from the
date of grant to the end of the option term. These hypothetical gains are
based on assumed rates of appreciation and, therefore, the actual gains, if
any, on stock option exercises are dependent on the future performance of
Bancorp common stock, overall stock market conditions, and the Named
Officer's continued employment with the Company. As a result, the amounts
reflected in this table may not necessarily be achieved.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
---------------------------------------------------------------- -----------------------
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS/SARS IN FISCAL BASE PRICE
NAME GRANTED(#) YEAR(2) ($/SH)(3) EXPIRATION DATE 5% 10%
- ---- ------------ ------------- -------------- --------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
John W. Kiefer....... 12,500 16.9% $31.00 February 2001 $107,000 $236,625
Stephen J. Donohue... 3,500 4.7% $31.00 February 2001 $ 29,960 $ 66,255
James L. Morrison.... 3,475 4.7% $31.00 February 2001 $ 29,746 $ 65,782
Michael J. Sullivan . 700 0.9% $31.00 February 2001 $ 5,992 $ 13,251
Dennis A. McDermott.. 2,500 3.4% $31.00 February 2001 $ 21,400 $ 47,325
</TABLE>
- ------------
(1) Bancorp did not grant any SARs during the 1995 fiscal year. All options
were granted in February 1996 for services rendered during the 1995
fiscal year. In addition, all of such options are exercisable immediately
and are granted for a term of five years.
(2) This information is as a percentage of total Company employees only.
(3) Exercise price is based on the Nasdaq National Market closing price of
Bancorp's common stock on the day immediately prior to the date of grant.
(4) Potential realizable value assumes that any shares that are acquired by
the exercise of options are held until the end of the five-year option
term.
OPTIONS EXERCISES UNDER BANCORP PLANS. The following table sets forth
stock options exercised during 1995 by the Named Officers, including the
value realized upon such exercises. In addition, this table describes the
number of unexercised options and the value of unexercised in-the-money
options at the end of the 1995 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND DECEMBER 31, 1995 OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, DECEMBER 31,
1995(#) 1995($)(2)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(2) UNEXERCISABLE(3) UNEXERCISABLE(3)
- --------------------- ---------------- ----------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
John W. Kiefer ...... 4,500 $124,125 59,001 / 0 $1,010,597 / 0
Stephen J. Donohue . 1,500 $ 41,375 15,500 / 0 $ 272,651 / 0
James L. Morrison .. 1,500 $ 41,375 15,100 / 0 $ 265,119 / 0
Michael J. Sullivan 0 $ 0 700 / 0 $ 0 / 0
Dennis A. McDermott 0 $ 0 11,500 / 0 $ 196,250 / 0
</TABLE>
51
<PAGE>
- ------------
(1) Bancorp has not granted any SARs under the Bancorp Plans.
(2) These values are based on the Nasdaq National Market closing price of
Bancorp's common stock on December 29, 1995.
(3) Includes options acquired pursuant to a 3-for-2 stock split effected in
the form of a 50% stock dividend in 1995. Also includes options which
were granted in February 1996 for services rendered during the 1995
fiscal year, which as of June 13, 1996 were out of the money options.
CERTAIN TRANSACTIONS
LOANS FROM AFFILIATES
The Company has a $125 million revolving line of credit facility with
Capital Bank, the Company's sole shareholder prior to the Offering, pursuant
to which the Company had outstanding borrowings of approximately $52 million
as of December 31, 1995. The Capital Facility bears interest at the prime
rate as published in the Wall Street Journal (8.75% at December 31, 1995).
The Facility is subject to annual review by Capital Bank and is due on
demand. The net proceeds from this offering will be used to reduce
indebtedness under the Capital Facility. The following table sets forth
certain information with respect to amounts owed by the Company to Capital
Bank since December 31, 1993:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum amount outstanding at any month-end $122,200 $118,000 $ 64,840
Average borrowings .......................... $103,929 $ 84,095 $ 52,701
Interest expense for the period ............. $ 6,845 $ 6,090 $ 4,732
Average interest rate ....................... 6.6% 7.2% 9.0%
</TABLE>
PENSION PLAN
Eligible employees of the Company participate in the Bancorp Pension Plan.
The Company's share of the required contributions to the Bancorp Pension Plan
are based on a fixed percentage of the Company's payroll and is remitted
monthly to Capital Bank. Capital Bank is responsible for the actual
contributions to the Bancorp Pension Plan. The Company remitted $113,420,
$134,390 and $172,090 for the years ending 1993, 1994 and 1995, respectively,
for its share of the Bancorp Pension Plan's costs.
GROUP MEDICAL AND LIFE PLANS
Capital Bank obtains group medical, dental and life insurance coverage on
behalf of the Company. Premiums are charged to the Company at the same amount
as they are assessed by the insurance companies to Capital Bank with respect
to the Company. During the years ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1996, the Company paid insurance premiums of
$114,846, $533,843, $527,669 and $139,099, respectively, for its actual
portion of such insurance premiums.
ALLOCATED EXPENSES WITH AFFILIATES
Capital Bank charges the Company for services rendered by Capital Bank's
legal department. Charges are based upon internal time estimates prepared by
Capital Bank for personnel costs and related overhead costs associated with
such services. Legal costs paid by the Company to Capital Bank for 1993, 1994
and 1995 were $190,662, $102,543 and $80,048 respectively. The Company also
reimburses Capital Bank for its portion of insurance expenses. Payments to
Capital Bank for insurance expenses during the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1996, aggregated
approximately $126,219, $97,384, $149,302 and $25,548, respectively.
LETTERS OF CREDIT
Capital Bank provided approximately $66.6 million, $79.5 million, $130.1
million and $30.7 million during 1993, 1994, 1995 and the three months ended
March 31, 1996, respectively, of letters of credit for
52
<PAGE>
clients of the Company. For a fee, the Company guarantees the payment by its
clients under these letters of credit. Fees charged for issuance of the
letters of credit are paid directly to Capital Bank and amounted to $445,090,
$389,571, $462,013 and $94,353, for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1996, respectively.
INCOME TAX PAYMENTS TO AFFILIATES
The results of operations of the Company are included in the consolidated
federal income tax returns filed by Bancorp. Capital Bank allocates income
taxes to the Company calculated on a separate return basis, except that tax
benefits are allocated to the Company to the extent such benefits are useable
by the consolidated group. The Company pays to (or receives from) Capital
Bank the amount of its estimated annual current tax provisions (benefits).
The Company paid approximately $3.0 million and $4.9 million for income taxes
related to its fiscal years ended December 31, 1993 and December 31, 1994,
respectively. As of December 31, 1995, the Company had not paid Capital Bank
the amounts due for taxes for the 1995 fiscal year.
TAX SHARING AND INDEMNITY AGREEMENT
After this offering, the results of operations of the Company will
continue to be included in the tax returns filed by Bancorp's affiliated,
combined or unitary groups for federal, state and local income and franchise
tax purposes. The members of those groups, including the Company, currently
are parties to a tax allocation agreement that allocates the liability for
those taxes among them. Effective on consummation of this offering, the
Company, Bancorp and the other members of those tax reporting groups will
enter into a new tax allocation and indemnity agreement. Under the new
agreement, for periods ending after the offering, the tax liabilities of the
group will be allocated between, on the one hand, the Parent Group (the
"Parent Group"), consisting of Bancorp and its direct and indirect
wholly-owned subsidiaries other than the Company and its direct and indirect
wholly-owned subsidiaries ("the Factors Group") and, on the other hand, the
Factors Group, pursuant to a method specified in regulations of the Treasury
Department that would impose on Parent Group and Factors Group liability for
an amount that corresponds (with various modifications) to the liability that
Parent Group and Factors Group each would incur if Parent Group and Factors
Group filed tax returns as separate affiliated, combined or unitary groups.
In addition, the new agreement provides that Factors Group will indemnify
Parent Group for any increase in the tax liability of the group that is
attributable (under the prior agreement or the new agreement, as applicable)
to Factors Group, and Factors Group will be entitled to receive any tax
refund that is attributable to Factors Group. The new agreement similarly
provides that Parent Group will indemnify Factors Group for any increase in
the tax liability of the group that is attributable to Parent Group.
TRANSACTIONS WITH OPPENHEIMER & CO., INC.
Craig L. Platt, a director of Bancorp since May 1993 and of Capital Bank
since April 1993, has been a Senior Vice President with Oppenheimer & Co.,
Inc., the managing underwriter of this offering, since December 1994. In
addition to Oppenheimer & Co., Inc.'s involvement with this offering, in July
1995, Oppenheimer & Co., was engaged by Capital Bank to provide advisory
services, for which Oppenheimer & Co., Inc. received a fee of $30,000. In
addition, Oppenheimer & Co., Inc. provided certain brokerage services to
Capital Bank in connection with its sale of 120,000 shares of Bancorp common
stock, for which it received its customary brokerage commission.
LOANS TO OFFICERS OF THE COMPANY
From time to time, Capital Bank makes loans and extends credit to certain
of the Company's officers and directors, including John W. Kiefer, the
President, Chief Executive Officer and a director of the Company. In the
opinion of Capital Bank, all of such loans and extensions of credit were made
in ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other third parties.
53
<PAGE>
AGREEMENT BETWEEN CAPITAL BANK, THE COMPANY AND THE COMPANY'S SUBSIDIARIES
The Company has agreed with Capital Bank not to issue any shares of Common
Stock that would reduce Capital Bank's interest below 80% or any shares of
any other class of capital stock without Capital Bank's written approval,
during the Eighty Percent Period. The Company may also not invest in or form
any corporation, amend its bylaws, change the size of its Board or fill
vacancies in the Board without such approval during the Eighty Percent
Period. Similar restrictions apply to the Company's direct and indirect
subsidiaries pursuant to this Agreement, except that such subsidiaries are
restricted from issuing any shares without approval by Capital Bank.
APPROVAL OF RELATED PARTY TRANSACTIONS
The Company has adopted a policy whereby all transactions between the
Company and one or more of its affiliates must be approved in advance by a
majority of the Company's Conflict of Interest Committee.
54
<PAGE>
PRINCIPAL SHAREHOLDERS
Capital Bank, whose principal address is 1221 Brickell Avenue, Miami,
Florida 33131, currently owns 10,000,000 shares of Common Stock (after giving
effect to the 10,000-for-1 stock split), representing 100% of all the issued
and outstanding Common Stock of the Company. After giving effect to issuance
of the Common Stock pursuant to this offering, Capital Bank will own
approximately 83% of the issued and outstanding Common Stock of the Company
(approximately 81% if the Underwriters' over-allotment option is exercised in
full).
Bancorp is the sole shareholder of Capital Bank. The following table sets
forth information, as of April 1, 1996, with respect to the beneficial
ownership of the common stock of Bancorp by (i) each director and nominee for
director of the Company, (ii) each person known to the Company to be the
beneficial owner of more than 5% of the outstanding common stock of Bancorp,
and (iii) all directors, nominees for director and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
ATTRIBUTABLE TO THE
COMPANY
----------------------
NAME OF INDIVIDUAL OR AMOUNT AND NATURE BEFORE AFTER
IDENTITY OF GROUP OF BENEFICIAL OWNERSHIP OFFERING OFFERING
- --------------------- ----------------------- -------- --------
<S> <C> <C> <C>
Fana Holtz ............................ 2,942,616(1) 39.6% 33.0%
Daniel M. Holtz ....................... 546,166(2) 7.3% 6.1%
Javier J. Holtz ....................... 285,778(3) 3.8% 3.2%
John W. Kiefer ........................ 68,001(4) * *
Stephen N. Ashman ..................... 60,866(5) * *
Harold L. Oshry ....................... 42,500(6) * *
Ronald S. Chase ....................... 23,750(7) * *
Bruce Raiffe .......................... 107,834(8) 1.4% 1.2%
Jack Listanowsky ...................... 12,500(9) * *
Leon Simkins .......................... 712,399(10) 9.6% 8.0%
Cynthia Cohen Turk .................... -- -- --
Norman G. Einspruch ................... -- -- --
Abel Holtz ............................ 677,077(11) 9.1% 7.6%
Alex Halberstein ...................... 734,692(12) 10.0% 8.3%
All directors and executive officers
of the Company as a group, including
those listed above (15 persons) ..... 1,195,305 15.1% 12.6%
</TABLE>
- ------------
* Less than 1%
(1) Includes 1,527,565 shares held individually, 1,392,051 shares over
which Mrs. Holtz claims voting power pursuant to various shareholder
agreements and irrevocable proxies and 23,000 shares that Mrs. Holtz has
the right to acquire upon exercise of presently exercisable options. Does
not include an aggregate of 325,838 shares, nor presently exercisable
options to purchase a total of 264,002 shares, owned by the adult sons of
Mrs. Holtz, as to which shares Mrs. Holtz disclaims beneficial ownership
and voting power. Also does not include 665,893 shares, nor presently
exercisable options to purchase a total of 11,184 shares, owned by Mr. Abel
Holtz, Mrs. Holtz's husband, as to which shares Mrs. Holtz disclaims
beneficial ownership and voting power. Mrs. Holtz, individually, and
together with her sons Daniel Holtz and Javier Holtz, filed an application
with the FDBF to acquire and/or maintain control of Bancorp, although they
do not believe that such an application is required. See "Business--Legal
and Administrative Proceedings--Administrative Proceedings" and "Business--
Regulation."
(2) Includes 162,919 shares held individually, 166,665 shares held
by DH Associates, Ltd., a partnership of which Daniel Holtz is general
partner, and 168,001 shares that Mr. Holtz has the right to acquire upon
exercise of currently exercisable options. Mr. Holtz, individually and
together with Fana Holtz and Javier Holtz, filed an application with the
FDBF to acquire and/or maintain control of Bancorp, although they do not
believe such an application is required. See "Business--Legal and
Administrative Proceedings--Administrative Proceedings" and
"Business--Regulation."
(3) Includes 162,919 shares held individually, 3,937 shares held jointly by
Javier Holtz and his wife, 22,500 shares held by his wife individually and
421 shares over which Mr. Holtz claims voting power pursuant to various
shareholder agreements and irrevocable proxies. Also includes 96,001 shares
that Mr. Holtz has the right to acquire upon exercise of currently
exercisable options. Mr. Holtz, individually and together with Fana Holtz
and Daniel Holtz, filed an application with the FDBF to acquire and/or
maintain control of Bancorp, although they do not believe such an
application is required. See "Business--Legal and Administrative
Proceedings--Administrative Proceedings" and "Business--Regulation."
55
<PAGE>
(4) Includes 9,000 shares held individually and 59,001 shares that Mr. Kiefer
has the right to acquire upon exercise of currently exercisable options.
(5) Includes 24,466 shares held jointly by Stephen Ashman and his wife,
7,000 shares held by his wife individually, 5,400 shares held by a trust of
which Mr. Ashman is a co-trustee and presently exercisable options held by
Mr. Ashman to purchase an aggregate of 20,000 shares.
(6) Includes 20,000 shares that Mr. Oshry has
the right to acquire upon exercise of
currently exercisable options.
(7) Represents presently exercisable options held by Mr. Chase to purchase
23,750 shares.
(8) Includes 20,000 shares that Mr. Raiffe has the right to acquire upon
exercise of presently exercisable options.
(9) Represents 12,500 shares that Mr. Listanowsky has the right to acquire
upon exercise of presently exercisable options.
(10) Includes 516,277 shares held by Mr. Simkins individually, 13 shares
held as custodian for Mr. Simkins' son under the Florida Gifts to Minors
Act, 170,109 shares held by a trust for the benefit of Mr. Simkins and
26,000 shares that Mr. Simkins has the right to acquire upon exercise of
presently exercisable options.
(11) Based upon the Schedule 13G filed by Mr. Holtz on February 14, 1996
pursuant to Rule 13d-1 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), includes presently exercisable options held by Abel
Holtz to purchase an aggregate of 11,184 shares. Abel Holtz has advised
Bancorp that he has orally agreed with the FDIC not to vote his shares in
Bancorp at the present time.
(12) Based upon the Schedule 13G filed by Mr. Halberstein on February 14,
1996 pursuant to Rule 13d-1 of the Exchange Act, includes 527,814 shares
held individually by Mr. Halberstein and 90,000 shares held jointly with
his wife. Also includes 116,878 shares held by Mr. Halberstein as trustee
for various trusts established for the benefit of Mr. Halberstein's family
members.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Holding's authorized capital stock consists of 25,000,000 shares of Common
Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, par value
$.01 per share. After giving effect to 10,000 for-1 stock split to be
effected by Holding prior to the effective date of this offering, an
aggregate of 10,000,000 shares of Common Stock will be outstanding. See
"Principal Shareholders." No shares of Preferred Stock have been issued to
date. The following brief description of Holding's capital stock does not
purport to be complete and is subject in all respects to applicable Florida
law and the provisions of Holding's Articles of Incorporation (the
"Articles") and Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of shareholders, including the election of directors. The
Common Stock does not have cumulative voting rights, which means that the
holders of a majority of the shares voting for election of directors can
elect all members of the Board of Directors. A majority vote is also
sufficient for other actions that require the vote of shareholders. Dividends
may be paid to holders of Common Stock when and if declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy."
Upon liquidation or dissolution of Holding, holders of Common Stock will be
entitled to share ratably in the assets of Holding legally available for
distribution to shareholders.
Upon completion of this offering, Holding's existing shareholder will
beneficially own approximately 83% of the outstanding shares of Common Stock
(approximately 81% if the Underwriters' over-allotment option is exercised in
full) and will therefore be able to elect the entire Board of Directors and
control all matters submitted to shareholders for a vote.
The holders of Common Stock have no preemptive or conversion rights and
are not subject to further calls or assessments by Holding, although Capital
Bank will have preemptive rights (the "Preemptive Rights") with respect to
the issuance of any shares of Holding's capital stock or other equity
securities, including shares issuable pursuant to outstanding options, other
than options issued pursuant to the Plan which are exercisable without
Capital Bank's approval, pursuant to an agreement entered into among Capital
Bank, Holding and Holding's direct and indirect subsidiaries. The Preemptive
Rights shall be exercisable at the same price per share as the shares
proposed to be issued. Such rights shall remain in effect during the Eighty
Percent Period. During this period, pursuant to the Articles, no additional
shares of Common Stock may be issued that would reduce Capital Bank's
ownership interest in the Common Stock below 80% of the issued and
outstanding shares of Common Stock without Capital Bank's written approval,
and no shares of any other class of capital stock or other equity security
may be issued without Capital Bank's written approval. The shares of Common
Stock offered hereby will be, when issued and paid for, fully paid and
non-assessable.
PREFERRED STOCK
Although Holding has no present plans to issue shares of Preferred Stock,
Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Company's Board of
Directors. The Board of Directors, without obtaining shareholder approval
other than written approval from Capital Bank during the Eighty Percent
Period, could issue the Preferred Stock with voting and/or conversion rights
and thereby dilute the voting power and equity of the holders of Common Stock
and adversely effect the market price of such stock. The issuance of
Preferred Stock could also be used as an antitakeover measure by Holding
without any further action by the shareholders.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF FLORIDA LAW AND THE COMPANY'S
ARTICLES OF INCORPORATION AND BYLAWS
Holding is subject to (i) the Florida Control Share Act, which generally
provides that shares acquired in excess of certain specified thresholds will
not possess any voting rights unless such voting
57
<PAGE>
rights are approved by a majority vote of the corporation's disinterested
shareholders and (ii) the Florida Fair Price Act, which generally requires
supermajority approval by disinterested directors or shareholders of certain
specified transactions between a corporation and holders of more than 10% of
the outstanding shares of the corporation (or their affiliates).
In addition, certain provisions of Holding's Articles summarized in the
following paragraphs may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider in its best interest, including those attempts that might
result in a premium over the market price for the shares held by
shareholders.
BOARD OF DIRECTORS. The Articles authorize the Board of Directors to fill
vacant directorships or increase the size of the Board, subject to the
approval of Capital Bank or its designee during the Eighty Percent Period.
This provision will prevent a shareholder from removing incumbent directors
and simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees and will deter the
Board from changing the Board without Capital Bank's approval.
BYLAWS. The Articles authorize the Board of Directors to amend the bylaws,
subject to the approval of Capital Bank or its designee during the Eighty
Percent Period. This provision will prevent a shareholder or the Board from
amending the bylaws without Capital Bank's approval during the Eighty Percent
Period.
SPECIAL MEETING OF SHAREHOLDERS. The Articles provide that special
meetings of shareholders of Holding be called only by the Board of Directors
or holders of not less than 30% of the votes entitled to be cast at the
special meeting.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
Common Stock and Preferred Stock are available for future issuance without
shareholder approval, except that during the Eighty Percent Period, written
approval of Capital Bank is required for the issuance of shares of Common
Stock that would reduce Capital Bank's ownership of Common Stock below 80% of
the issued and outstanding shares of Common Stock or for the issuance of
shares of any other class of capital stock. If issued, these additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and
unreserved Common Stock and Preferred Stock may enable the Board of
Directors, with Capital Bank's approval during the Eighty Percent Period and
without such approval thereafter, to issue shares to persons friendly to
current management or Capital Bank which could render more difficult or
discourage an attempt to obtain control of Holding by means of a proxy
contest, tender offer, merger or otherwise, and thereby protect the
continuity of Holding's management.
The articles of incorporation of each of the direct and indirect
subsidiaries of Holding prohibit the issuance of additional shares of capital
stock during the Eighty Percent Period, without the prior approval of Capital
Bank. In addition, such articles require Capital Bank's approval during the
Eighty Percent Period for the Board to change the size of the Board, fill
vacancies in the Board or amend the bylaws. The foregoing provisions
applicable to such subsidiaries and the provisions applicable to Holding are
also contained in an agreement among Capital Bank, Holding and such
subsidiaries. This agreement also gives Capital Bank preemptive rights during
the Eighty Percent Period.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock will be American
Stock Transfer and Trust Company.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have 12,000,000
shares of Common Stock outstanding (12,300,000 shares if the Over-Allotment
Option is exercised in full). Of those shares, the 2,000,000 shares sold in
this offering (2,300,000 shares if the Over-Allotment Option is exercised in
full) will be freely transferable without restriction or registration under
the Act, unless purchased by persons deemed to be "affiliates" of the Company
(as that term is defined under the Act). The remaining 10,000,000 shares of
Common Stock to be outstanding immediately following the offering
("restricted shares") may only be sold in the public market if such shares
are registered under the Act or sold in accordance with Rule 144 promulgated
under the Act.
In general, under Rule 144 a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned his shares for
two years, may sell in the open market within any three-month period a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 120,000 shares
immediately after this offering, 123,000 if the over-allotment option is
exercised in full) or (ii) the average weekly trading volume in the Common
Stock in the over-the-counter market during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain limitations on
the manner of sale, notice requirements and availability of current public
information about the Company. A person (or persons whose shares are
aggregated) who is deemed not to have been an "affiliate" of the Company at
any time during the 90 days preceding a sale by such person and who has
beneficially owned his shares for at least three years, may sell such shares
in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements or availability
of current information referred to above. Restricted shares properly sold in
reliance upon Rule 144 are thereafter freely tradeable without restrictions
or registration under the Act, unless thereafter held by an "affiliate" of
the Company.
The Commission has recently proposed reducing the initial Rule 144 holding
period to one year and the Rule 144(k) holding period to two years. There can
be no assurance as to when or whether such rule changes will be enacted. If
enacted, such modifications will have a material effect on the times when
shares of the Company's Common Stock become eligible for resale.
The Company has reserved an aggregate of 800,000 shares of Common Stock
for issuance pursuant to the Plan and the Company intends to register such
shares on Form S-8 following this offering. Subject to restrictions imposed
pursuant to the Plans, shares of Common Stock issued pursuant to the Plans
after the effective date of any Registration Statement on Form S-8 will be
available for sale in the public market without restriction to the extent
they are held by persons who are not affiliates of the Company, and by
affiliates pursuant to Rule 144. See "Management--Stock Option Plan."
Prior to this offering, there has been no trading market for the Common
Stock. No prediction can be made as to the effect, if any, that future sales
of shares pursuant to Rule 144 or otherwise will have on the market price
prevailing from time to time. Sales of substantial amounts of the Common
Stock in the public market following this offering could adversely affect the
then prevailing market price. The Company's existing sole shareholder,
Capital Bank, has agreed that it will not sell or otherwise transfer any
shares of Common Stock to the public for 180 days after this offering. See
"Underwriting."
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement between
the Company and the Underwriters named below (the "Underwriting Agreement"),
for whom Oppenheimer & Co., Inc. is acting as representative (the
"Representative"), the Underwriters have severally agreed to purchase from
the Company, and the Company has agreed to sell to the Underwriters, the
number of shares of Common Stock set forth opposite their respective names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------- --------------
<S> <C>
Oppenheimer & Co., Inc. ...
--------------
Total ................... 2,000,000
==============
</TABLE>
The Underwriters will be obligated to purchase all of the shares of Common
Stock offered (other than the shares covered by the over-allotment option
described below) if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, concessions
not in excess of $ per share on sales to other brokers or dealers. After
the initial public offering, the public offering price, concession and
reallowance to brokers or dealers may be changed by the Representative.
The Underwriters have been granted a 30-day over-allotment option to
purchase from the Company up to an aggregate of 300,000 additional shares of
Common Stock exercisable from time to time at the public offering price less
the underwriting discount. If the Underwriters exercise such over-allotment
option, then each of the Underwriters will be obligated, subject to certain
conditions, to purchase the same proportion thereof as the number of shares
of Common Stock to be purchased by it as shown in the above table bears to
the shares of Common Stock offered hereby. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of
Common Stock offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Act, and to
contribute to payments that the Underwriters may be required to make in
respect thereof.
The Company, Capital Bank, the sole shareholder of the Company prior to
the offering, and their respective officers and directors have agreed that
they will not sell, offer to sell, contract to sell, distribute, transfer,
grant any option for the sale of or otherwise dispose of, directly or
indirectly, any shares of Common Stock, any securities convertible into,
exercisable for or exchangeable for Common Stock or any rights to purchase or
acquire Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representative, except
for the shares offered hereby and the issuance of shares upon exercise of
options granted under the Company's stock option plans. See "Shares Eligible
for Future Sale."
60
<PAGE>
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock offered hereby
has been determined by negotiation between the Company and the
Representative. The matters considered in determining the initial public
offering price include the history of and prospects for the industry in which
the Company competes, the ability of the Company's management, the past and
present operations of the Company, the historical results of operations of
the Company, the prospects for further earnings of the Company, the general
condition of the securities markets at the time of the offering and the
prices of similar securities of generally comparable companies. There can be
no assurance that an active or orderly trading market will develop for Common
Stock or that the Common Stock will trade in the public market subsequent to
the offering at or above the initial public trading price. The Company's Common
Stock has been approved for listing on the Nasdaq National Market System under
the symbol "CAPF."
Craig L. Platt, a director of Bancorp since May 1993 and Capital Bank
since April 1993, has been a Senior Vice President with Oppenheimer & Co.,
Inc., the managing underwriter of this offering, since December 1994. Mr. Platt
is a 40% limited partner in a partnership which owns 166,665 shares of Bancorp
common stock; however, he has no voting or investment control of such shares.
In addition, Mr. Platt has presently exercisable options to acquire 23,750
shares of Bancorp common stock, which he received in his capacity as a director
of Bancorp and Capital Bank. Additionally, Oppenheimer & Co., Inc. has from
time to time provided investment banking and brokerage services to affiliates
of the Company. See "Certain Transactions."
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., Miami, Florida. Certain legal matters for the Underwriters will be
passed upon by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports thereon appearing herein and elsewhere
in the Registration Statement, and have been so included in reliance upon
such reports given upon the authority of that firm as experts in accounting
and auditing.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE COMPANY'S FINANCIAL STATEMENTS
Report of Independent Auditors ........................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995
and March 31, 1996 (unaudited).......................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994 and 1995
and for the three month periods ended March 31, 1995 and 1996 (unaudited)............... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993,
1994 and 1995 and for the three month periods ended March 31, and 1996 (unaudited)...... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and for the three month periods ended March 31, 1995 and 1996 (unaudited).......... F-6
Notes to Consolidated Financial Statements ............................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Capital Factors Holding, Inc.:
We have audited the accompanying consolidated balance sheets of Capital
Factors Holding, Inc. (a wholly owned subsidiary of Capital Bank) and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of income, stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Capital Factors Holding, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Miami, Florida
February 28, 1996 (March 4, 1996 as to the second paragraph of Note 13, May 16,
1996 as to the third paragraph of Note 13 and June , 1996 as to the first
paragraph of Note 13)
The accompanying consolidated financial statements reflect the
10,000-for-one stock split of Common Stock which is to be effected
immediately prior to the effective date of the offering contemplated by this
Prospectus. The above opinion is in the form which will be signed by Deloitte
& Touche LLP upon consummation of the 10,000-for-one stock split, as
described in the first paragraph of Note 13 of Notes to Consolidated
Financial Statements assuming that from June 13, 1996 to the date of such
split, no other events shall have occurred that would affect the accompanying
financial statements and notes thereto.
Deloitte & Touche LLP
Miami, Florida
June 13, 1996
F-2
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- MARCH 31,
1994 1995 1996
--------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash (Note 12) ........................................ $ 15,446,835 $ 20,326,814 $ 16,718,006
Restricted Cash (Notes 5,12) .......................... 4,687,500 16,187,500 6,562,500
Receivables (Notes 3,5,12) ............................ 260,390,337 361,205,965 401,515,700
Unearned discounts ................................... (2,781,219) (3,404,016) (4,051,473)
Allowance for credit losses .......................... (1,774,101) (2,980,778) (2,683,733)
--------------- --------------- ---------------
Receivables, net ...................................... 255,835,017 354,821,171 394,780,494
Property and equipment, net (Note 4) .................. 3,026,155 3,285,049 3,282,592
Other Assets (Notes 5,7) .............................. 3,884,422 4,850,831 5,042,554
--------------- --------------- ---------------
TOTAL .................................................. $282,879,929 $399,471,365 $426,386,146
=============== =============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Due to affiliates (Note 9) ............................ $ 4,835,698 $ 6,452,964 $ 1,250,458
Capital Factors variable rate asset backed
certificates (Notes 5,12) ........................... 125,000,000 175,000,000 175,000,000
Notes payable to affiliates (Notes 6,12) .............. 34,540,000 52,260,000 69,754,000
Due to factoring clients (Note 12) .................... 90,706,683 128,577,577 141,578,108
Other liabilities ..................................... 3,150,246 3,840,425 3,560,137
--------------- --------------- ---------------
Total liabilities .................................... 258,232,627 366,130,966 391,142,703
--------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES (Notes 8,10,11,12)
STOCKHOLDER'S EQUITY (Note 1,13):
Common stock, $0.01 par value, 10,000,000 shares
authorized, issued and outstanding ................ 100,000 100,000 100,000
Additional paid-in capital ............................ 9,542,096 9,542,096 9,542,096
Retained earnings ..................................... 15,005,206 23,698,303 25,601,347
--------------- --------------- ---------------
Total stockholder's equity ........................... 24,647,302 33,340,399 35,243,443
--------------- --------------- ---------------
TOTAL .................................................. $282,879,929 $399,471,365 $426,386,146
=============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Factoring fees ........................... $15,375,900 $17,370,626 $19,518,541 $ 4,565,143 $ 5,524,449
Interest income .......................... 13,511,324 17,628,230 28,210,599 6,003,949 7,574,087
Letter of Credit and other fees .......... 1,127,513 1,237,611 2,040,383 350,693 753,821
Other .................................... 1,302,685 1,540,712 1,849,466 324,461 291,043
-------------- -------------- -------------- -------------- --------------
Total revenues .......................... 31,317,422 37,777,179 51,618,989 11,244,246 14,143,400
-------------- -------------- -------------- -------------- --------------
EXPENSES (Note 9) .........................
Interest expense (Note 5, 6) ............. 997,446 4,238,942 11,629,391 2,500,796 3,141,111
Interest expense to affiliates (Note 6,9). 6,844,512 6,090,174 4,731,668 1,052,634 1,415,197
Salaries and benefits .................... 7,773,626 8,698,858 11,240,046 2,620,828 3,250,837
Provision for credit losses (Note 3) .... 2,645,000 2,235,000 2,234,721 450,000 1,100,000
Occupancy and other office expenses ..... 1,861,862 2,135,319 2,588,459 544,543 880,876
Depreciation ............................. 565,311 591,554 632,739 163,042 153,640
Professional fees ........................ 1,286,929 1,180,861 991,535 242,162 179,039
Other .................................... 1,584,017 1,529,925 3,004,570 531,600 824,218
-------------- -------------- -------------- -------------- --------------
Total expenses .......................... 23,558,703 26,700,633 37,053,129 8,105,605 10,944,918
-------------- -------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES ................ 7,758,719 11,076,546 14,565,860 3,138,641 3,198,482
-------------- -------------- -------------- -------------- --------------
PROVISION FOR INCOME TAXES (Note 7) ...... 3,453,428 4,984,450 5,872,763 1,255,636 1,295,438
-------------- -------------- -------------- -------------- --------------
NET INCOME ................................ $ 4,305,291 $ 6,092,096 $ 8,693,097 $ 1,883,005 $ 1,903,044
============== ============== ============== ============== ==============
NET INCOME PER SHARE (Note 2) ............. $ 0.43 $ 0.61 $ 0.87 $ 0.19 $ 0.19
============== ============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------------
ADDITIONAL
PAID-IN RETAINED
COMMON STOCK CAPITAL EARNINGS
--------------- -------------- --------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 ......... $100,000 $ 9,542,096 $ 4,607,819
Net Income ........................ 0 0 4,305,291
--------------- -------------- --------------
BALANCE, DECEMBER 31, 1993 ......... 100,000 9,542,096 8,913,110
--------------- -------------- --------------
Net Income ........................ 0 0 6,092,096
--------------- -------------- --------------
BALANCE, DECEMBER 31, 1994 ......... 100,000 9,542,096 15,005,206
--------------- -------------- --------------
Net Income ........................ 0 0 8,693,097
--------------- -------------- --------------
BALANCE, DECEMBER 31, 1995 ......... 100,000 9,542,096 23,698,303
--------------- -------------- --------------
Net Income (unaudited)............. 0 0 1,903,044
--------------- -------------- --------------
BALANCE, MARCH 31, 1996 (unaudited) $100,000 $9,542,096 $25,601,347
=============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------- --------------------------------
1993 1994 1995 1995 1996
--------------- ---------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................ $ 4,305,291 $ 6,092,096 $ 8,693,097 $ 1,883,005 $ 1,903,044
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation ................... 565,311 591,554 632,739 163,042 153,640
Deferred income taxes .......... (259,664) 209,383 (399,986) (125,982) 106,869
Provision for credit losses ... 2,645,000 2,235,000 2,234,721 450,000 1,100,000
Increase in restricted cash ... 0 (4,687,500) (1,500,000) -- (375,000)
Loss on sale of assets ......... 0 12,399 3,873 -- 884
Due to affiliates .............. 456,869 3,936,578 1,617,266 (2,808,222) (5,202,506)
Other assets ................... (104,338) 343,208 (430,465) (275,655) (403,554)
Other liabilities .............. 688,899 1,052,788 690,179 4,484,197 (280,288)
--------------- ---------------- --------------- --------------- ---------------
Net cash provided by operating
activities ................. 8,297,368 9,785,506 11,541,424 3,770,385 (2,996,911)
--------------- ---------------- --------------- --------------- ---------------
INVESTING ACTIVITIES:
Loan to clients, net .............. (6,202,118) (7,448,868) (3,053,589) 7,271,274 10,882,604
Increase in asset backed loans ... 0 (10,473,533) (27,841,907) (4,384,703) 4,980,164
Net increase in factoring accounts
receivable, net of due to
factoring clients ............... (34,761,943) (5,230,704) (32,940,825) (35,551,618) (44,588,233)
Sales of participations ........... 11,545,936 334,570 1,238,287 -- 1,228,458
Payments on participations ....... (2,000,000) (12,180,506) (751,947) (409,421) (561,784)
Purchase of property and equipment (313,839) (621,391) (914,342) (153,023) (152,068)
Disposal of property and equipment 0 2,821 18,836 17,466 0
--------------- ---------------- --------------- --------------- ---------------
Net cash used in investing
activities ................. (31,731,964) (35,617,611) (64,245,487) (33,210,025) (28,210,859)
--------------- ---------------- --------------- --------------- ---------------
FINANCING ACTIVITIES:
Issuance of senior certificates .. 0 125,000,000 50,000,000 -- --
Restricted proceeds from senior
certificates .................... 0 0 (10,000,000) -- 10,000,000
Proceeds from borrowings .......... 50,700,000 51,900,000 53,522,033 30,990,000 24,042,000
Payments on borrowings ............ (27,200,000) (140,360,000) (35,802,033) (690,000) (6,548,000)
Payments of deferred financing
costs ........................... 0 (2,700,761) (744,802) 0 (66,523)
Amortization of deferred costs ... 0 228,189 608,844 137,592 171,485
--------------- ---------------- --------------- --------------- ---------------
Net cash provided by financing
activities ................. 23,500,000 34,067,428 57,584,042 30,437,592 27,598,962
--------------- ---------------- --------------- --------------- ---------------
NET INCREASE IN CASH ............... 65,404 8,235,323 4,879,979 997,952 (3,608,808)
CASH, BEGINNING OF PERIOD .......... 7,146,108 7,211,512 15,446,835 15,446,835 20,326,814
--------------- ---------------- --------------- --------------- ---------------
CASH, END OF PERIOD ................ $ 7,211,512 $ 15,446,835 $ 20,326,814 $ 16,444,787 $ 16,718,006
=============== ================ =============== =============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest ...... $ 8,064,714 $ 9,375,978 $ 14,784,541 $ 3,331,280 $ 4,381,897
=============== ================ =============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF OPERATIONS
Capital Factors Holding, Inc. ("the Parent Company") is a wholly-owned
subsidiary of Capital Bank (the "Bank"). The Bank is a wholly-owned
subsidiary of Capital Bancorp ("Bancorp"). The Parent Company was
incorporated in June 1994, in order to accommodate the issuance of Variable
Rate Asset Backed Certificates (as further discussed in Note 5 to the
financial statements), and issued 1000 shares (100%) of its stock to Capital
Bank in exchange for 60 shares (100%) of the outstanding shares of Capital
Factors, Inc. ("Factors"). Since the stock transaction has been between
related parties, the results of operations have been presented as though the
companies had been combined as of the earliest year presented. The Parent
Company has two wholly-owned subsidiaries, Factors and CF One, Inc. ("CF
One"). Factors has one wholly-owned subsidiary, CF Funding Corp. ("Funding").
Factors provides factoring and other services primarily to commercial
businesses and generally purchases trade accounts receivables from clients
and assumes all risks of collectibility for credit approved receivables,
except as such risks result from fraud or invalid receivables, and dilution.
Factors generally enters into advance factoring arrangements which allow
clients to obtain cash advances against a stipulated percentage of the
receivables before they are due or collected.
The Company provides services to its clients through four offices located
in Fort Lauderdale, Florida; Los Angeles, California; New York, New York and
Charlotte, North Carolina. The Company's clients primarily include
manufacturers, importers, wholesalers and distributors in apparel and textile
related industries and, to a lesser extent, clients in consumer goods related
industries such as plastics, video game cartridges, paper and healthcare
services.
The Company's factored accounts receivable are due from clients' customers
geographically located throughout the United States, principally retailers,
manufacturers and distributors. The majority of the Company's customers are
large national or regional department store chains or specialty retailers. As
of December 31, 1994, 1995 and March 31, 1996, the Company had factored
accounts receivable aggregating approximately $114.1 million, $130.0 million
and $169.5 million, respectively, due from 34, 37 and 44 customers,
respectively, each with balances exceeding $1 million. These customers are
primarily large national or regional department store chains or specialty
retailers. The largest amount due from any one customer, a national
department store chain, at March 31, 1996 was approximately $18.8 million.
The Company's asset backed loans represent loans provided to clients
principally collateralized by accounts receivables. The Company does not
service the accounts receivables nor does it provide credit protection of the
receivables.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION--The unaudited financial statements as of
March 31, 1996 and for the three months ended March 31, 1996 and 1995 have
been prepared on the same basis as the audited financial statements included
herein. In the opinion of management, such unaudited financial statements
F-7
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND DESCRIPTION OF OPERATIONS--(CONTINUED)
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the results for such periods. The operating
results for the three months ended March 31, 1996 are not necessarily
indicative of the operating results to be expected for the full fiscal year
or for any future period.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements of
Capital Factors Holding, Inc. and Subsidiaries (the "Company") include the
accounts of the Parent Company, Factors and Funding, and CF One. All
significant intercompany transactions and balances have been eliminated in
consolidation.
INCOME RECOGNITION--Interest income on all loans and advances is
calculated using the simple interest method on the daily balances of
principal outstanding and is recorded as earned in accordance with the terms
of the related factoring agreements with clients. Accrual of interest income
is discontinued on troubled loans and advances to factoring clients when the
loan balance and interest receivable exceeds the estimated value of the
collateral securing the loan or advance. Factoring fees are recognized
generally at the time of purchase of factored receivables due to the nature
of the relationship with the factoring client and the relatively short term
nature of the factored receivables. Commitment/closing fees related to asset
based loans are amortized over the life of the loan as an adjustment of
yield.
ALLOWANCE FOR CREDIT LOSSES--The allowance for credit losses is maintained
at a level deemed adequate by management to absorb losses in the portfolio
after evaluating the portfolio, current economic conditions, changes in the
nature and the volume of the portfolio, past loss experience and other
pertinent factors. Many of these factors involve a significant degree of
estimation and are subject to rapid change which may be unforeseen by
management. It is reasonably possible that changes in these factors could
result in material adjustments to the allowance in the near term.
PROPERTY AND EQUIPMENT--Property and equipment are carried at cost less
accumulated depreciation. Depreciation is provided over the estimated useful
lives, primarily on the straight-line method. Estimated depreciable lives
range from 3--8 years for furniture, equipment, software and leasehold
improvements and 39 years for buildings.
UNEARNED AND EARNED DISCOUNTS--The Company deducts trade and cash
discounts on all factoring invoices purchased. Discounts not taken by
customers are recognized as income principally at the time of payment of the
invoice.
UNALLOCATED CREDITS--The Company generally notifies the payor when
unidentifiable payments or portions thereof are received. If the payor does
not respond within 90 days, the Company generally records the unallocated
credits as income. The Company maintains an allowance for unallocated credits
recorded as income which may be subsequently repaid based upon its historical
experience.
NET INCOME PER SHARE--Net income per share amounts are based on the
average number of common shares outstanding for each period, after giving
effect to the stock split discussed in Note 13.
F-8
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------- MARCH 31,
1994 1995 1996
---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Nonrecourse ................... $188,698,818 $ 226,916,598 $ 243,422,912
Recourse ...................... 37,786,588 69,558,913 109,554,707
---------------- ---------------- ----------------
Factored accounts receivables 226,485,406 296,475,511 352,977,619
Loans to factoring client .... 23,431,398 26,415,014 15,202,805
Asset based loans ............. 10,473,533 38,315,440 33,335,276
---------------- ---------------- ----------------
$260,390,337 $361,205,965 $401,515,700
================ ================ ================
</TABLE>
The Company also makes advances to factoring clients. Such advance
payments, which are interest earning, are recorded as reductions to the
amounts due to the factoring clients for the purchase of receivables.
Changes in the Company's allowance for credit losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- MARCH 31,
1994 1995 1995 1996
------------- -------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance ........... $ 2,174,844 $ 2,157,333 $ 1,774,101 $ 2,980,778
Provision for credit losses 2,645,000 2,235,000 2,234,721 1,100,000
Charge-offs ................. (3,384,956) (3,148,281) (1,625,148) (1,487,831)
Recoveries .................. 722,445 530,049 597,104 90,786
-------------- ------------- ------------- ------------
Ending balance .............. $ 2,157,333 $ 1,774,101 $ 2,980,778 $ 2,683,733
============== ============= ============= ============
</TABLE>
The Company specifically considered $739,332, $2,184,046 and $2,436,486 of
its client advances impaired at December 31, 1994 and 1995 and March 31,
1996, respectively and has discontinued the accrual of interest income. The
allowance for credit losses related to these impaired loans for the same
periods was $48,051, $133,847 and $105,422, respectively.
F-9
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1994 1995 1996
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Land .......................... $ 479,581 $ 479,581 $ 479,581
Building ...................... 1,518,538 1,518,538 1,518,538
Building improvements ......... 744,909 744,909 749,568
Furniture and equipment ...... 2,311,602 3,007,122 3,141,843
Computer software ............. 191,486 267,666 279,175
Leasehold improvements ........ 53,447 59,140 59,140
-------------- -------------- --------------
5,299,563 6,076,956 6,227,845
Less accumulated depreciation (2,273,408) (2,791,907) (2,945,253)
-------------- -------------- --------------
$ 3,026,155 $ 3,285,049 $ 3,282,592
============== ============== ==============
</TABLE>
5. VARIABLE RATE ASSET-BACKED CERTIFICATES
On June 29, 1994, December 15, 1994 and July 28, 1995. Capital Factors,
Inc., through its wholly owned subsidiary CF Funding Corp., issued
$100,000,000, $25,000,000 and $50,000,000, respectively, of Variable Rate
Asset Backed Certificates ("senior certificates") with maturity dates of
December 1999, June 2000 and January 2001. The senior certificates bear an
interest rate of LIBOR plus 1.25%. The interest rate on December 31, 1995 and
March 31, 1996 was 7.1875% and 6.625%, respectively. Interest is payable
monthly. The senior certificates are collateralized by interest-earning
advances to factoring clients which totaled $198,992,000 and $224,086,000 at
December 31, 1995 and March 31, 1996, respectively. Such advances are made on
receivables before they are due or collected by the Company. Capital Factors,
Inc., services and administers these advances and related receivables under
an agreement entered into by Bankers Trust Company as Trustee, CF Funding
Corp. and Capital Factors, Inc. The senior certificates may not be redeemed
prior to their stated maturity and are subject to acceleration if certain
collateral requirements are not maintained. Deferred issuance costs of $2.6
million are being amortized over the terms of the related series. Such costs
are included in other assets on the balance sheets.
Restricted Cash--CF Funding Corporation is required to maintain a cash
collateral account at Bankers Trust Company, pursuant to the terms of the
aforementioned agreement. Such restricted cash collateral amounted to
$6,187,500 and $6,562,500 at December 31, 1995 and March 31, 1996,
respectively.
Of the $50,000,000 of senior certificates issued on July 28, 1995, CF
Funding Corp. initially utilized $15,000,000, and a Pre-Funding account was
created at Bankers Trust Company for the remaining $35,000,000. During 1995
CF Funding Corp. drewdown these funds as supported by interest earning
advances to clients. At December 31, 1995, $10,000,000 remained in the
Pre-Funding account. This remaining amount is also included in restricted
cash. No cash remained in the Pre-Funding account at March 31, 1996.
F-10
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. BORROWINGS
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31,
1994 1995 1996
-------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Affiliates
A $125 million revolving line-of-credit payable to
the Bank at prime (8.25%, 8.75% and 8.25% at
December 31, 1994, December 31, 1995 and March
31, 1996 with interest payable monthly. The loan
matures on demand ............................... $34,540,000 $52,260,000 $69,754,000
============== ============== =============
</TABLE>
Supplemental information for the Company's borrowings including the
Variable Rate Asset Backed Certificates (Note 5), follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- --------------------------------
1993 1994 1995 1995 1996
--------------- --------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Maximum amount outstanding
at any month-end ........ $137,200,000 $171,000,000 $221,871,000 $189,840,000 $284,754,000
Average borrowings ........ $118,929,000 $142,959,000 $191,264,000 $172,887,000 $223,984,000
Interest expense for
the period .............. $ 7,662,569 $ 9,990,305 $ 15,140,324 $ 3,323,055 $ 4,183,079
Average interest rate .... 6.44% 6.99% 7.92% 7.69% 7.47%
Average interest rate, end
of period ............... 6.35% 7.67% 7.57% 7.93% 7.11%
</TABLE>
7. INCOME TAXES
The results of operations of the Company are included in the consolidated
Federal income tax return filed by Bancorp. Bancorp allocates income taxes to
the Company principally calculated on a separate return basis. The Company
pays to (or receives from) the Bank the amount of its estimated annual
current tax provisions (benefits). The Company paid approximately $3,042,000,
$0, and $4,929,000, for income taxes in the years ended December 31, 1993,
1994 and 1995, respectively, and $0 and $6,000,000 in the three month periods
ended March 31, 1995 and 1996, respectively, for income taxes related to its
fiscal years ended December 31, 1993 and 1994 respectively. As of December
31, 1995, the Company had not paid the Bank the amounts due for taxes for the
1995 fiscal year. The amounts are included in the balance sheet as due to
affiliates.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
F-11
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES --(CONTINUED)
The tax effects of significant items comprising the Company's net deferred
tax asset, which is included in other assets in the balance sheet, as of
December 31, 1994, 1995 and March 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Bad debts ........................................ $ 684,359 $ 1,149,834 $ 1,035,250
Difference between book and tax basis of property 145,592 126,393 126,393
Deferred compensation ............................. 138,870 92,580 100,295
------------ -------------- --------------
Deferred asset .................................... 968,821 1,368,807 1,261,938
------------ -------------- --------------
Deferred tax liability:
Pension costs .................................... (29,750) (29,750) (29,750)
Difference between book and tax basis of assets .. (6,099) (6,099) (6,099)
------------ -------------- --------------
Deferred liability ................................ (35,849) (35,849) (35,849)
------------ -------------- --------------
Net deferred asset ............................... $ 932,972 $ 1,332,958 $ 1,226,089
============ ============== ==============
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current taxes:
Federal ................. $ 2,728,004 $ 3,436,645 $ 4,898,648 $ 864,082 $ 947,607
State ................... 985,088 1,338,422 1,374,101 517,536 240,962
-------------- -------------- -------------- -------------- -------------
3,713,092 4,775,067 6,272,749 1,381,618 1,188,569
-------------- -------------- -------------- -------------- -------------
Deferred taxes (benefit):
Federal and State ....... (259,664) 209,383 (399,986) (125,982) 106,869
-------------- -------------- -------------- ------------- -------------
$ 3,453,428 $ 4,984,450 $ 5,872,763 $1,255,636 $ 1,295,438
============== ============== ============== ============== =============
</TABLE>
F-12
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES--(CONTINUED)
The following is a reconciliation between the provision for income taxes
included in the accompanying statements of income and the provision computed
using the statutory federal tax rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------- -------------------------------------------
1993 1994 1995 1995 1996
--------------------- -------------------- --------------------- -------------------- ---------------------
% OF % OF % OF % OF % OF
PRETAX PRETAX PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Computed provision at
statutory rate .... $ 2,715,552 35.0% $3,876,791 35.0% $5,098,051 35.0% $1,098,524 35.0% $1,119,469 35.0%
Benefit of graduated
tax rate .......... (77,587) (1.0%) (110,765) (1.0%)
State taxes, net of
federal benefit ... 640,307 8.3% 889,379 8.0% 774,712 5.3% 157,112 5.0% 175,969 5.5%
Other ............... 175,156 2.3% 329,045 3.0%
----------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
$ 3,453,428 44.6% $4,984,450 45.0% $5,872,763 40.3% 1,255,636 40.0% $1,295,438 40.5%
=========== ====== ========== ====== ========== ====== ========== ====== ========== ======
</TABLE>
8. COMMITMENTS AND OFF-BALANCE SHEET RISK
The Company is a lessee under operating leases for real estate and
equipment. The real estate leases contain clauses which require additional
rent for increases in operating expenses or a proportionate share of taxes
and operating expenses. There are no options to renew the leases of the
leased regional offices. The approximate future minimum rental payments under
noncancellable leases (exclusive of additional amounts for taxes and
operating expenses) as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Years ending december 31,
<S> <C>
1996 ................... $ 702,277
1997 ................... 817,049
1998 ................... 817,049
1999 ................... 817,049
2000 and thereafter ... $1,534,424
-------------
$4,687,848
=============
</TABLE>
Rental expense for the years ended December 31, 1993, 1994 and 1995 and
for the three months ended March 31, 1995 and 1996 was approximately
$428,000, $487,000, $624,000, $122,000 and $185,000, respectively.
In the normal course of business, the Company utilizes certain financial
instruments with off-balance sheet risk to meet the financing needs of its
clients. These off-balance sheet activities include amounts available under
the unused portion of approved customer and client credit limits, commercial
letters of credit and standby letters of credit and financial guarantees.
Letters of credit are issued by the Bank for the Company's clients and the
Company guarantees the payment by its clients under these letters of credit.
The credit and market risks associated with these financial instruments are
generally managed in conjunction with the Company's balance sheet activities
and are subject to normal credit policies, financial controls and risk
limiting and monitoring procedures.
F-13
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMITMENTS AND OFF-BALANCE SHEET RISK--(CONTINUED)
Credit losses may be incurred when one of the parties fails to perform in
accordance with the terms of the contract. The Company's exposure to credit
loss is represented by the contractual amount of the commitments to extend
credit, commercial letters of credit and standby letters of credit and
financial guarantees. This is the maximum potential loss of principal in the
event the commitment is drawn upon and the counterpart defaults. In addition,
the measurements of the risks associated with these financial instruments is
meaningful only when all related and offsetting transactions are considered.
Amounts available under the unused portion of approved customer and client
credit limits do not necessarily represent legally binding arrangements to
factored sales or otherwise advance funds to clients. Generally, credit
approvals and limits are modified or withdrawn based upon the Company's
evaluation of the customer or client's credit or if the client violates the
terms of the factoring agreement. Credit limits for clients and customers
continually vary and do not necessarily represent future cash requirements to
fund the factored sales or otherwise advance funds to clients.
Commercial letters of credit are issued to facilitate certain trade
transactions, principally the purchase of goods. The risks associated with
these transactions are somewhat reduced since the contracts are generally for
a short commitment period. Standby letters of credit and financial guarantees
are conditional commitments issued to guarantee the performance of a customer
to a third party. The Company issues standby letters of credit and financial
guarantees to ensure contract performance or assure payment by its clients.
The risk involved in issuing standby letters of credit to clients and
financial guarantees is similar to the risk involved in extending credit to
clients and they are subject to the same credit approvals and monitoring
procedures. At December 31, 1994, 1995 and March 31, 1996, the Company had
approximately $19,677,000, $22,645,000 and $30,203,000, respectively, of
letters of credit and financial guarantees outstanding. The Company usually
guarantees letters of credit and financial guarantees only for clients with
which the Company has factoring arrangements. Generally, the Company requires
collateral to support these commitments and the collateral held varies but
may include cash, merchandise, inventory, real estate and the client's
reserve balance.
9. RELATED PARTY TRANSACTIONS
The Company expensed interest payments to the Bank of $6,845,000,
$6,090,000, $4,732,000, $1,053,000 and $1,415,000 on its $125 million
revolving line of credit facility with the Bank during the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995
and March 31, 1996, respectively.
The Bank obtained group medical, dental and life insurance coverage on
behalf of the Company. Premiums are charged to the Company at the same amount
as they are assessed by the insurance companies to the Bank with respect to
the Company. During 1993, 1994 and 1995, the Company paid insurance premiums
of $114,846, $533,843 and $527,669, respectively, and $122,350 and $139,099
for the three months ended March 31, 1995 and March 31, 1996, for its actual
portion of such insurance premiums.
Capital Bank provided approximately $66.6 million, $79.5 million, $130.1
million and $30.7 million during 1993, 1994, 1995 and the three months ended
March 31, 1996, respectively, of letters of credit for clients of the
Company. For a fee, the Company guarantees the payment by its clients under
these letters of credit. Fees charged for issuance of the letters of credit
are paid directly to Capital Bank and
F-14
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. RELATED PARTY TRANSACTIONS--(CONTINUED)
amounted to $445,090, $389,571 and $462,013, during 1993, 1994 and 1995, and
$94,353 for the three months ended March 31, 1996, respectively.
The Bank charged the Company for services rendered by the Bank's legal
department. Charges are based upon estimates prepared by the Bank. Payments
to the Bank for these items during the periods ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1995 and 1996 aggregated
approximately, $190,663, $102,543, $80,048, $36,804 and $0, respectively. The
Company also reimburses the Bank for its portion of commercial insurance
expenses. Payments to the Bank for insurance expenses during 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 equaled $126,219,
$97,384, $149,302, $0 and $25,548, respectively. In addition, the Company
paid the Bank $136,100, $17,700, $148,900, $27,952 and $16,128 during the
periods ended December 31, 1993, 1994 and 1995 and the three months ended
March 31, 1995 and 1996, respectively, for bank service charges.
Due to affiliate represents balances owed to the Bank at the end of the
fiscal year, principally the unremitted portion of the Company's current tax
liability.
10. CONTINGENCIES
From time to time, the Company has been a party to lawsuits and claims,
including lender liability claims, which management considers incidental to
normal operations. The Company is currently a party to one lawsuit that was
dismissed after trial. The Plaintiff is currently appealing the dismissal.
Management, after review, including consultation with counsel, believes that
any ultimate liability which could arise from this current lawsuit would not
materially affect the financial position or results of operations of the
Company.
11. RETIREMENT PLAN
Bancorp sponsors a noncontributory defined benefit pension plan (the
"Plan") covering employees meeting certain eligibility requirements. The
Company's employees are included in the Plan. The benefits are based on years
of service and the employee's compensation for the five consecutive years
during the last ten years of service that produce the highest average salary.
The Plan provides for accumulation of full benefits equal to 30% of eligible
compensation over a 25-year period. Full vesting will occur after completion
of seven years of service. Bancorp's funding policy is to contribute annually
the maximum amount that can be deducted for Federal income tax purposes. The
Bank charged the Company pension costs of approximately $113,420, $134,390,
$172,090, $48,644 and $56,489 for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996, respectively.
F-15
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RETIREMENT PLAN--(CONTINUED)
The following items are components of the net periodic pension cost of the
Plan:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1993 1994 1995
------------ ------------ --------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 554,156 $ 704,851 $ 700,348
Interest cost-projected benefits obligation 307,955 370,261 525,785
Actual return on plan assets ................ (390,959) (102,875) (1,403,127)
Net amortization and deferral ............... 91 (300,215) 1,384,221
------------ ------------ --------------
Net periodic pension cost ................... $ 471,243 $ 672,022 $ 1,207,227
============ ============ ==============
</TABLE>
The funded status of the Plan is shown in the table below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
Plan assets at fair value .......................... $ 5,464,072 $ 7,176,298
Projected benefit obligation for services rendered (6,271,120) (8,635,263)
-------------- --------------
Plan assets less than projected benefit obligation (807,048) (1,458,965)
Unrecognized prior service cost .................... 112,193 407,424
Unrecognized net loss .............................. 642,231 336,923
Adjustment to recognize minimum required liability (522,530)
-------------- --------------
Accrued pension cost (Bancorp) ..................... $ (575,154) $ (714,618)
============== ==============
</TABLE>
At December 31, 1994 and 1995, the Plan's assets consisted of approximately
55% and 60%, respectively, of corporate equities. The remainder of such assets
include U.S. government securities, corporate bonds, cash and cash equivalents
and accrued interest and dividends.
The accumulated benefits obligation at December 31, 1994 and 1995 was
approximately $6,039,000 and $7,097,000, respectively. Included in these
amounts were vested benefits of approximately $5,422,000 and $6,454,000 at
December 31, 1994 and 1995, respectively.
The assumed weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.00% in 1994
and 1995. The assumed expected long-term rate of return on assets was 8.50%
in 1994 and 1995. The assumed rate of salary progression was 5.50% in 1994
and 1995.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
In cases where quoted market prices are not available, fair value
estimates are based on the quoted market price of a financial instrument with
similar characteristics, the present value of expected future cash flows or
other valuation techniques. Fair value estimates determined using other
valuation techniques are significantly affected by the assumptions used and
consequently may not reflect the proceeds that may be realizable from the
sale of such financial instruments.
The estimated fair value disclosures related to the Company's financial
instruments are as follows:
Cash: Since the Company's cash is maintained in demand deposit accounts,
the carrying amount is equal to the fair value.
F-16
<PAGE>
CAPITAL FACTORS HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
Accounts Receivable, Due to/from Factoring Clients: The Company's
receivables turn over quickly and interest earning advances made to clients
against such receivables and loans to factoring clients carry variable
interest rates based upon the prime rate and reprice as the prime rate
changes. Therefore, the Company believes the carrying amounts are reasonable
estimates of fair value.
Notes and Certificates Payable: The Company's notes payable are short-term
in nature and carry variable interest rates which reprice at least every 30
days. The Company believes the interest rates on the notes and certificates
payable approximate rates currently available to the Company and consequently
the carrying amount is a reasonable estimate of fair value.
Letters of Credit: As indicated in Note 8, the Company utilizes certain
financial instruments with off-balance sheet risk to meet the financing needs
of its clients. At December 31, 1994 and 1995 and March 31, 1996, the Company
had approximately $19,677,000, $22,645,000 and $30,203,000, respectively, of
letters of credit and financial guarantees for clients outstanding. The
estimated fair value of these off-balance sheet instruments, based on
discounting the fees to be charged on the unused portion of such facilities
until their respective expiration dates is considered insignificant.
13. SUBSEQUENT EVENTS
Effective , 1996, the Parent Company executed a 10,000 for 1 stock
split resulting in 10,000,000 common shares issued and outstanding. The stock
split is retroactively reflected in the consolidated financial statements.
On March 4, 1996, Factors entered into a loan and security agreement with
Fleet Capital Corporation ("Fleet"), under which Fleet agrees to make a total
credit facility of up to $40,000,000, available upon Factors' request. The
revolver loans bear an interest rate of LIBOR plus 2.15% (7.525% at March 31,
1996). Interest is payable monthly. The revolver loans are collateralized by
interest-bearing advances to borrowers. Factors services and administers
these advances under the agreement with Fleet. This agreement shall be in
effect for a period of 3 years through March 4, 1999 and shall automatically
renew itself for 1-year periods thereafter unless terminated by lender or
borrower upon at least 90 days prior written notice. The revolver loans are
subject to termination if certain events of default occur.
In May 1996, the Company, through its direct wholly-owned subsidiary, CF
One, Inc. raised $10,000,000 in financing through the issuance of $10,000,000
in subordinated notes. The notes bear interest at a fixed annual rate of
7.95% and mature in July 2001.
F-17
<PAGE>
=============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ............................... 3
Risk Factors ..................................... 7
Use of Proceeds .................................. 13
Dividend Policy .................................. 13
Capitalization ................................... 13
Selected Consolidated Financial Data ............. 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations ... 16
Business ......................................... 24
Management ....................................... 41
Certain Transactions ............................. 52
Principal Shareholders ........................... 55
Description of Capital Stock ..................... 57
Shares Eligible for Future Sale .................. 59
Underwriting ..................................... 60
Legal Matters .................................... 61
Experts .......................................... 61
Index to Financial Statements .................... F-1
</TABLE>
- -----------------------------------------------------------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
2,000,000 SHARES
CAPITAL FACTORS HOLDING, INC.
Common Stock
----------------
PROSPECTUS
----------------
OPPENHEIMER & CO., INC.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant in
connection with the offering described in this registration statement (other
than underwriting discounts and commissions) will be as follows:
Securities And Exchange Commission registration fee ...... $ 11,103.45
NASD filing fee .......................................... 3,720.00
Nasdaq National Market listing fee ....................... 47,500.00
Printing and engraving expenses .......................... 80,000.00*
Accounting fees and expenses ............................. 75,000.00*
Legal fees and expenses .................................. 185,000.00*
Fees and expenses (including legal fees) for
qualifications under state securities laws ............. 25,000.00*
Registrar and Transfer Agent's fees and expenses ......... 5,000.00*
Miscellaneous ............................................ 67,676.55*
--------------
Total .................................................. $500,000.00*
==============
- ------------
* Estimated.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under the Florida Business Corporation Act to
indemnify its directors and officers to the extent provided in such statute.
The Registrant's Articles of Incorporation provide that the Registrant shall
indemnify its executive officers and directors to the fullest extent
permitted by law either now or hereafter. The Registrant is also entering
into an agreement with each of its directors and certain of its officers
wherein it is agreeing to indemnify each of them to the fullest extent
permitted by law. In general, Florida law permits a Florida corporation to
indemnify its directors, officers, employees and agents, and persons serving
at the corporation's request in such capacities for another enterprise
against liabilities arising from conduct that such persons reasonably
believed to be in, or not opposed to, the best interests of the corporation
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe their conduct was unlawful.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of a director and, in
appropriate circumstances, equitable remedies such as injunctive or other
forms of nonmonetary relief will remain available under Florida law. In
addition, each director will continue to be subject to liability for (a)
violations of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his
conduct was unlawful, (b) deriving an improper personal benefit from a
transaction, (c) voting for or assenting to an unlawful distribution, and (d)
willful misconduct or a conscious disregard for the best interests of the
Registrant in a proceeding by or in the right of the Registrant to procure a
judgment in its favor or in a proceeding by or in the right of a shareholder.
The statute does not affect a director's responsibilities under any other
law, such as the Federal securities laws or state or Federal environmental
laws.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought from the Registrant, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification from the Registrant
by any
II-1
<PAGE>
officer or director. See "Business--Legal and Administrative Proceedings" for
information regarding claims for indemnification asserted against Capital
Bancorp.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In May 1985, Capital Bank acquired 100% of the issued and outstanding
common stock of Capital Factors, Inc. ("Factors"). In June 1994, Factors
completed a reorganization in which Capital Factors Holding, Inc. ("Holding")
was formed. In connection with this reorganization, Holding issued 1,000
shares (100%) of its common stock, representing all of the then-issued and
outstanding shares of such capital stock to Capital Bank in exchange for 60
shares (100%) of Factors common stock. Prior to the effective date of this
offering, as a result of a 10,000-for-1 stock split, the 1,000 shares of
Holding Common Stock owned by Capital Bank will be converted into 10,000,000
shares of Common Stock. The original issuances of Factors and Holding Common
Stock were exempt from the registration requirements of the Act pursuant to
the exemption set forth in Section 4(2) thereof.
A primary reason why Holding was formed was to accommodate the issuance of
asset-backed certificates in connection with the Securitized Financings which
have been issued pursuant to several private placements. Additionally, in
1994, Holding formed another subsidiary, CF One, Inc., and Factors formed a
subsidiary, CF Funding Corp. Both CF One, Inc. and CF Funding Corp. were
created to accommodate the issuance of the asset-backed certificates. CF One,
Inc. holds subordinated certificates issued by the Trust, created in
connection with the Securitized Financings, which it purchased with funds
contributed to it by Holding. Pursuant to the Securitized Financings,
Advances made by Factors that were collateralized by third party accounts
receivable and, in certain cases, by cash, letters of credit, inventory or
other collateral provided to Factors were sold to CF Funding Corp., which
subsequently transferred the Advances of the Trust. The Trust issued
investment grade senior certificates, which were sold to institutional buyers
through several private placements. The aggregate amount of certificates
presently outstanding is $175 million of which $100 million of certificates
were issued in June 1994 (placed by Oppenheimer & Co., Inc.), $25 million of
certificates were issued in December 1994 (placed by Westwood Associates) and
$50 million of certificates were issued in July 1995 (placed by Westwood
Associates). Each certificate evidences an interest in the Trust's assets and
the right to receive the payment of principal in the face amount of the
certificate and interest from the Trust. The Trust's assets consist
principally of the Advances, as well as funds collected or to be collected in
respect of the Advances and the collateral therefor. Factors is responsible
for servicing the Advances owned by the Trust. Subordinated certificates were
also issued by the Trust to CF One, Inc. in connection with each of the
Securitized Financings ($15 million in June 1994, $3.75 million in December
1994, $7.50 million in July 1995) through the same placement agents. The
original issuances of the asset-backed certificates and subordinated
certificates were exempt from the registration requirements of the Act
pursuant to the exemption set forth in Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement**
3.1 Form of Registrant's Amended and Restated Articles of Incorporation*
3.2 Form of Registrant's Amended and Restated Bylaws*
4.1 Form of Common Stock Certificate*
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of
the Common Stock being registered**
10.1 Form of Registrant's Stock Option Plan*
10.2 Capital Bancorp Employees Pension Plan*
10.3 Form of Indemnification Agreement between the Registrant and each of its directors and certain executive
officers(1)
II-2
<PAGE>
EXHIBIT DESCRIPTION
- --------------------------------------------------------------------------------------------------------------
10.4 Capital Factors Financing Trust Pooling and Servicing Agreement, dated as of June 1, 1994, among CF
Funding Corp., the Registrant and Bankers Trust Company(1)
10.5 Contribution and Sale Agreement related to the Capital Factors Financing Trust Pooling and Services
Agreement(1)
10.6 Series 1994-1 Supplement, dated as of June 1, 1994, to Capital Factors Financing Trust Pooling and
Servicing Agreement(1)
10.7 Series 1994-2 Supplement, dated as of December 1, 1994, to Capital Factors Financing Trust Pooling
and Servicing Agreement(1)
10.8 Series 1995-1 Supplement, dated as of July 1, 1995, to Capital Factors Financing Trust Pooling and
Servicing Agreement(1)
10.9 Promissory Note evidencing Credit Facility with Capital Bank(1)
10.10 Credit Facility with Fleet Capital Corporation(1)
10.11 Lease Agreement dated as of April 30, 1990, between Hachette Filipacchi Magazines, Inc. (formerly Diamandis
Communications, Inc.) and Factors, as amended*
10.12 Lease Agreement dated April 19, 1995, between Factors and H-C REIT, Inc.(1)
10.13 Lease Agreement dated as of March 1, 1995, between Hope & Flowers B.P. Partnership and Factors(1)
10.14 Tax Sharing and Indemnity Agreement*
10.15 Employment Agreement among John W. Kiefer, the Registrant and Capital Factors, Inc.*
10.16 Employment Agreement, dated January 1, 1993, between Stephen J. Donohue and the Registrant(1)
10.17 Employment Agreement, dated January 1, 1993, between James L. Morrison and the Registrant(1)
10.18 Note Purchase Agreement, dated as of May 15, 1996, between CF One, Inc. and Connecticut General Life
Insurance Company*
10.19 Collateral Pledge and Account Agreement, dated as of May 15, 1996, among CF One, Inc., Bankers Trust
Company and Connecticut General Life Insurance Company*
10.20 Form of Agreement Among Capital Bank, the Registrant, Capital Factors, Inc., CF One, Inc. and CF Funding
Corp.*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be included in its
opinion to be filed as Exhibit 5.1)**
23.2 Consent of Deloitte & Touche LLP*
24.1 Reference is made to the Signatures section of this Registration Statement for the Power of Attorney
contained therein(1)
99.1 Consent of Cynthia Cohen Turk*
99.2 Consent of Norman G. Einspruch, Ph.D.*
</TABLE>
- ------------
(1) Previously filed.
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions
or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
II-3
<PAGE>
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registration of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Fort Lauderdale, State of Florida, on June 17, 1996.
CAPITAL FACTORS HOLDING, INC.
By: /s/ JOHN W. KIEFER
John W. Kiefer, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN W. KIEFER President, Chief Executive June 17, 1996
John W. Kiefer Officer and Director
(principal executive officer)
/s/ DENNIS A. McDERMOTT* Senior Vice President--Finance June 17, 1996
Dennis A. McDermott and Chief Financial Officer
(principal financial officer and
principal accounting officer)
/s/ JAVIER J. HOLTZ* Chairman of the Board June 17, 1996
Javier J. Holtz
/s/ DANIEL M. HOLTZ* Director June 17, 1996
Daniel M. Holtz
/s/ STEPHEN N. ASHMAN* Director June 17, 1996
Stephen N. Ashman
/s/ RONALD S. CHASE* Director June 17, 1996
Ronald S. Chase
/s/ HAROLD L. OSHRY* Director June 17, 1996
Harold L. Oshry
/s/ BRUCE RAIFFE* Director June 17, 1996
Bruce Raiffe
/s/ JACK LISTANOWSKY* Director June 17, 1996
Jack Listanowsky
*By: /s/ JOHN W. KIEFER June 17, 1996
John W. Kiefer,
Attorney-in-fact
</TABLE>
II-5
Exhibit 3.1
CERTIFICATE
RE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CAPITAL FACTORS HOLDING, INC.
Capital Factors Holding, Inc., a Florida corporation (the
"Corporation"), hereby certifies, pursuant to and in accordance with Section
607.1007 of the Florida Business Corporation Act for the purpose of filing its
Amended and Restated Articles of Incorporation with the Department of State of
the State of Florida, that:
1. The name of the Corporation is Capital Factors Holding, Inc.
2. The Corporation's Amended and Restated Articles of Incorporation
attached hereto (the "Restated Articles") contain certain
amendments to the Corporation's Articles of Incorporation that
provide, among other things, for a reclassification of issued
shares and the implementation thereof.
3. The Restated Articles contain certain amendments to the
Corporation's Articles of Incorporation which require shareholder
approval, and the Restated Articles were unanimously adopted and
approved on June __, 1996 by (i) the Corporation's Board of
Directors at a meeting of the Board, and (ii) the sole
shareholder of the Corporation pursuant to a written consent, the
number of votes cast being sufficient for approval.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
June __, 1996.
CAPITAL FACTORS HOLDING, INC.
By:________________________________________
Name:
Title:
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CAPITAL FACTORS HOLDING, INC.
Pursuant to Sections 607.1003, 607.1006 and 607.1007 of the Florida
Business Corporation Act, the undersigned Corporation adopts the following
Amended and Restated Articles of Incorporation.
The original Articles of Incorporation were filed with the Secretary of
State on April 29, 1994, under the name "Capital Factors Holding, Inc."
ARTICLE I
The name of the corporation is CAPITAL FACTORS HOLDING, INC.
(hereinafter called the "Corporation).
ARTICLE II
The address of the principal office and the mailing address of the
Corporation at the time of filing of these Amended and Restated Articles of
Incorporation is 1799 West Oakland Park Boulevard, Fort Lauderdale, Florida
33311.
ARTICLE III
The aggregate number of shares of all classes of capital stock which
this Corporation shall have authority to issue is Twenty-Six Million
(26,000,000), consisting of (i) Twenty-Five Million (25,000,000) shares of
common stock, par value $0.01 per share (the "Common Stock"), and (ii) One
Million (1,000,000) shares of preferred stock, par value $0.01 per share (the
Preferred Stock").
The designations and the preferences, limitations and relative rights of
the Preferred Stock and the Common Stock of the Corporation are as follows:
A. PROVISIONS RELATING TO THE PREFERRED STOCK.
1. Except as set forth in subsection D of this Article III, the
Preferred Stock may be issued from time to time in one or more classes or
series, the shares of each class or series to have such designations and powers,
preferences and rights, and qualifications, limitations and restrictions thereof
as are stated and expressed herein and in
<PAGE>
the resolution or resolutions providing for the issue of such class or series
adopted by the Board of Directors as hereinafter prescribed.
2. Except as set forth in subsection D of this Article III,
authority is hereby expressly granted to and vested in the Board of Directors to
authorize the issuance of the Preferred Stock from time to time in one or more
classes or series, to determine and take necessary proceedings fully to effect
the issuance and redemption of any such Preferred Stock and, with respect to
each class or series of the Preferred Stock, to fix and state by the resolution
or resolutions from time to time adopted providing for the issuance thereof the
following:
(i) whether or not the class or series is to have voting
rights, full or limited, or is to be without voting rights;
(ii) the number of shares to constitute the class or
series and the designations thereof;
(iii) the preferences and relative, participating,
optional or other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or series
shall be redeemable and if redeemable the redemption price or prices, and the
time or times at which and the terms and conditions upon which, such shares
shall be redeemable and the manner of redemption;
(v) whether or not the shares of a class or series shall
be subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and if such retirement or
sinking fund or funds be established, the annual amount thereof and the terms
and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in
cash, stock of the Corporation, or other property, the conditions upon which and
the times when such dividends are payable, the preference to or the relation to
the payment of the dividends payable on any other class or classes or series of
stock whether or not such dividend shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof
which the holders of any class or series thereof shall be entitled to receive
upon the voluntary or involuntary dissolution of, or upon any distribution of
the assets of, the Corporation;
(viii) whether or not the shares of any class or series
shall be convertible into, or exchangeable for, the shares of any other class or
classes or of any other
2
<PAGE>
series of the same or any other class or classes of stock of the Corporation and
the conversion price or prices or ratio or ratios or the rate or rates at which
such conversion or exchange may be made, with such adjustments, if any, as shall
be stated and expressed or provided for in such resolution or resolutions; and
(ix) such other special rights and protective provisions
with respect to any class or series as the Board of Directors may deem
advisable.
The shares of each class or series of the Preferred Stock may vary from
the shares of any other series thereof in any or all of the foregoing respects.
The Board of Directors may increase the number of shares of the Preferred Stock
designated for any existing class or series by a resolution adding to such class
or series authorized and unissued shares of the Preferred Stock not designated
for any other class or series. The Board of Directors may decrease the number of
shares of the Preferred Stock designated for any existing class or series by a
resolution, subtracting from such series unissued shares of the Preferred Stock
designated for such class or series, and the shares so subtracted shall become
authorized, unissued and undesignated shares of the Preferred Stock.
B. PROVISIONS RELATING TO THE COMMON STOCK.
1. Except as otherwise required by law or as may be provided by
the resolutions of the Board of Directors authorizing the issuance of any class
or series of Preferred Stock, as herein above provided, all rights to vote and
all voting power shall be vested exclusively in the holders of the Common Stock.
2. Subject to the rights of the holders of the Preferred Stock
the holders of the Common Stock shall be entitled to receive when, as and if
declared by the Board of Directors, out of funds legally available therefor,
dividends payable in cash, stock or otherwise.
3. Upon any liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock shall have been paid in full the amounts to which they shall be
entitled (if any) or a sum sufficient for such payment in full shall have been
set aside, the remaining net assets of the Corporation shall be distributed pro
rata to the holders of the Common Stock in accordance with their respective
rights and interests to the exclusion of the holders of the Preferred Stock.
C. GENERAL PROVISIONS.
1. Except as may be provided by the resolutions of the Board of
Directors authorizing the issuance of any class or series of Preferred Stock as
hereinabove provided, cumulative voting by any shareholder is hereby expressly
denied.
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2. Except as set forth in the remaining sentences of this
subsection C.2 of this Article III, no shareholder of this Corporation shall
have, by reason of its holding shares of any class or series of stock of this
Corporation, any preemptive or preferential rights to purchase or subscribe for
any other shares of any class or series of this Corporation now or hereafter to
be authorized, and any other equity securities, or any notes, debentures,
warrants, bonds, or other securities convertible into or carrying options or
warrants to purchase shares of any class, now or hereafter to be authorized,
whether or not the issuance of any such shares, or such notes, debentures, bonds
or other securities, would adversely affect the dividend or voting rights of
such shareholder. Notwithstanding the foregoing, the Corporation may contract
with a shareholder to grant such preemptive or preferential rights during the
period that and so long as Capital Bank, a Florida corporation and presently the
sole shareholder of the Corporation, or such other entity or person designated
in writing by Capital Bank or by a previous designee of Capital Bank and to
which or whom Capital Bank or such previous designee transfers shares in the
Corporation constituting control of the Corporation within the meaning of
Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code"),
that is, shares having at least 80 percent of the total combined voting power of
all classes of stock entitled to vote for directors of the Corporation and
constituting at least 80 percent of the total number of shares of each other
class of stock of the Corporation, all as defined in Section 368(c) of the Code
(all such stock in the aggregate constituting "Eighty Percent Control" and
Capital Bank or any such designee being hereinafter referred to as an "Eighty
Percent Holder"), holds Eighty Percent Control (such period being hereinafter
referred to as the "Eighty Percent Period").
D. PROHIBITIONS AGAINST FUTURE ISSUANCES AND INVESTMENTS.
Notwithstanding any other provision of these Articles, during the Eighty
Percent Period, and although a vote of shareholders is not and shall not be
required under applicable law or these Articles for the issuance of shares of
capital stock or equity securities or any debt or other instrument that is
convertible or exchangeable into stock or any other equity security of the
Corporation, including options or any other rights to purchase capital stock,
pursuant to any employee benefit plan or stock option plan (collectively,
"Plan") or otherwise, that are authorized under these Articles, but unissued,
or, in many circumstances, to acquire an ownership interest in an entity or to
form an entity, the advance written approval of the Eighty Percent Holder shall
be required (unless waived in writing by the Eighty Percent Holder) prior to (i)
the Corporation taking any action, including without limitation, the issuance of
any capital stock or other equity security or any debt or other instrument that
is convertible or exchangeable into stock or any other equity security of the
Corporation, including options or any other rights to purchase capital stock,
pursuant to any Plan or otherwise, that would reduce the percentage of ownership
of the Eighty Percent Holder in the capital stock of the Corporation so that the
Eighty Percent Holder thereafter would not own stock constituting Eighty Percent
Control (treating options or any other rights to purchase capital stock as
exercised immediately upon issuance for purposes of making this determination)
or that otherwise would reduce (or, with the taking of any action contemplated
by the instrument in question, could reduce) the Eighty Percent
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Holder's ownership of Corporation stock below "control" of the Corporation
within the meaning of Section 368(c) of the Code; or (ii) the Corporation
acquiring any direct or indirect ownership interest in an entity or forming an
entity, in either case, that would be treated as a corporation for federal
income tax purposes under the Code, and the Corporation shall not take any such
action above without the prior written approval of the Eighty Percent Holder.
Any attempt to take such action without the prior written approval of the Eighty
Percent Holder shall be null and void and any purported issuance of capital
stock or an equity security or any convertible or exchangeable debt or other
instrument or any right to purchase the same or any acquisition or formation of
an interest in an entity in violation of this provision shall not terminate the
Eighty Percent Period. The Corporation may enter into an agreement with any
Eighty Percent Holder reflecting the terms of this Article III D.
E. SHARE RECLASSIFICATION
On the date of filing of the Amended and Restated Articles of
Incorporation with the Secretary of State of the State of Florida, the 1,000
issued and outstanding shares of the Corporation's previously authorized common
stock, par value $1.00 per share (the "Old Common Stock"), shall thereby and
thereupon be classified and converted into 10,000,000 validly issued, fully paid
and nonassessable shares of Common Stock reflecting a conversion ratio of 10,000
shares of Common Stock for each one share of Old Common Stock. Each certificate
that heretofore represented shares of Old Common Stock shall thereafter
represent the number of whole shares of Common Stock into which the shares of
Old Common Stock represented by such certificate were reclassified and
converted; provided, however, that each person holding of record a stock
certificate or certificates that represented shares of Old Common Stock shall
receive, upon surrender of each such certificate or certificates, a new
certificate or certificates evidencing and representing the number of shares of
Common Stock to which such person is entitled.
ARTICLE IV
CALL OF SPECIAL SHAREHOLDERS MEETING. Except as otherwise required by
law, the Corporation shall not be required to hold a special meeting of
shareholders of the Corporation unless (in addition to any other requirements of
law) (i) the holders of not less than thirty (30) percent of all the votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date and deliver to the Corporation's secretary one or
more written demands for the meeting describing the purpose or purposes for
which it is to be held or (ii) the meeting is called by the Board pursuant to a
resolution approved by a majority of the entire Board. Only business within the
purpose or purposes described in the special meeting notice required by Section
607.0705 of the Florida Business Corporation Act may be conducted at a special
shareholders' meeting.
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ARTICLE V
The Board of Directors of the Corporation shall consist of at least one
director, with the exact number to be fixed from time to time by the affirmative
vote of a majority of directors in office, subject to the advance written
approval of the Eighty Percent Holder during the Eighty Percent Period (unless
such requirement is waived in writing by the Eighty Percent Holder and although
a vote of shareholders is not required under applicable law or these Articles to
fix the number of directors), or the affirmative vote of holders of a majority
of the shares entitled to vote on the matter. The Corporation may enter into an
agreement with any Eighty Percent Holder reflecting the terms of this Article V,
as they relate to the Eighty Percent Holder.
ARTICLE VI
Whenever any vacancy on the Board shall occur due to death, resignation,
retirement, disqualification, removal, increase in the number of directors, or
otherwise, a majority of directors in office, although less than a quorum of the
entire Board, subject to the advance written approval of the Eighty Percent
Holder during the Eighty Percent Period (unless such requirement is waived in
writing by the Eighty Percent Holder and although a vote of shareholders is not
required under applicable law or these Articles to fill vacancies in the Board),
or holders of a majority of the shares entitled to vote on the matter may fill
the vacancy or vacancies for the balance of the unexpired term or terms, at
which time a successor or successors shall be duly elected by the shareholders
and qualified. The Corporation may enter into an agreement with any Eighty
Percent Holder reflecting the terms of this Article VI, as they relate to the
Eighty Percent Holder.
ARTICLE VII
Unless otherwise provided by law, the Bylaws of the Corporation may be
altered, amended or repealed, in whole or in part, or new Bylaws may be adopted,
by the affirmative vote of a majority of the directors in office, subject to the
advance written approval of the Eighty Percent Holder during the Eighty Percent
Period (unless such requirement is waived in writing by the Eighty Percent
Holder and although a vote of shareholders is not required under applicable law
or these Articles to alter, amend or repeal, in whole or in part, the Bylaws, or
to adopt new Bylaws), or the affirmative vote of holders of a majority of the
shares entitled to vote on the matter. The Corporation may enter into an
agreement with any Eighty Percent Holder reflecting the terms of this Article
VII, as they relate to the Eighty Percent Holder.
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ARTICLE VIII
This Corporation shall indemnify and shall advance expenses on behalf of
its officers and directors to the fullest extent not prohibited by any law in
existence either now or hereafter.
IN WITNESS WHEREOF, the Corporation has caused these Amended and
Restated Articles of Incorporation to be executed by an officer of this
Corporation this ___ day of June, 1996.
CAPITAL FACTORS HOLDING, INC
By:
Name:
Title:
7
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
CAPITAL FACTORS HOLDING, INC.
(A FLORIDA CORPORATION)
<PAGE>
INDEX
ARTICLE ONE - OFFICES...................................................... 1
1. Registered Office........................................... 1
2. Other Offices............................................... 1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS..................................... 1
1. Place....................................................... 1
2. Time of Annual Meeting...................................... 1
3. Call of Special Meetings.................................... 1
4. Conduct of Meetings......................................... 1
5. Notice and Waiver of Notice................................. 2
6. Business and Nominations for Annual and Special Meetings.... 2
7. Quorum...................................................... 2
8. Voting Per Share............................................ 3
9. Voting of Shares............................................ 3
10. Proxies..................................................... 4
11. Shareholder List............................................ 4
12. Action Without Meeting...................................... 4
13. Fixing Record Date.......................................... 5
14. Inspectors and Judges....................................... 5
15. Voting for Directors........................................ 5
ARTICLE THREE - DIRECTORS.................................................. 6
1. Number; Election and Term; Removal.......................... 6
2. Vacancies................................................... 6
3. Powers...................................................... 6
4. Place of Meetings........................................... 6
5. Annual Meeting.............................................. 6
6. Regular Meetings............................................ 6
7. Special Meetings and Notice................................. 6
8. Quorum; Required Vote; Presumption of Assent................ 7
9. Action Without Meeting...................................... 7
10. Conference Telephone or Similar Communications Equipment
Meetings.................................................... 7
11. Committees.................................................. 8
12. Compensation of Directors................................... 8
13. Chairman of the Board....................................... 8
ARTICLE FOUR - OFFICERS.................................................... 8
1. Positions................................................... 8
2. Election of Specified Officers by Board..................... 9
3. Election or Appointment of Other Officers................... 9
4. Salaries.................................................... 9
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5. Term; Resignation........................................... 9
6. President................................................... 9
7. Vice Presidents............................................. 9
8. Secretary................................................... 10
9. Treasurer................................................... 10
10. Other Officers; Employees and Agents........................ 10
ARTICLE FIVE - CERTIFICATES FOR SHARES..................................... 10
1. Issue of Certificates....................................... 10
2. Legends for Preferences and Restrictions on Transfer........ 10
3. Facsimile Signatures........................................ 11
4. Lost Certificates........................................... 11
5. Transfer of Shares.......................................... 12
6. Registered Shareholders..................................... 12
7. Redemption of Control Shares................................ 12
ARTICLE SIX - GENERAL PROVISIONS........................................... 12
1. Dividends................................................... 12
2. Reserves.................................................... 12
3. Checks...................................................... 12
4. Fiscal Year................................................. 12
5. Seal........................................................ 12
6. Gender.......................................................13
ARTICLE SEVEN - AMENDMENT OF BYLAWS........................................ 13
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CAPITAL FACTORS HOLDING, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE ONE
OFFICES
Section 1. REGISTERED OFFICE. The registered office of CAPITAL FACTORS
HOLDING, INC., a Florida corporation (the "Corporation"), shall be located in
the City of Fort Lauderdale, State of Florida, unless otherwise designated by
the Board of Directors.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders shall
be held on such date and at such time fixed, from time to time, by the Board of
Directors, provided that there shall be an annual meeting held every year at
which the shareholders shall elect a Board of Directors (or the appropriate
class of the Board of Directors if the Board of Directors is divided into two or
more classes) and transact such other business as may properly be brought before
the meeting.
Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders shall be held if called in accordance with the procedures set forth
in the Corporation's Articles of Incorporation (the "Articles of Incorporation")
for the call of a special meeting of shareholders.
Section 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and special meetings of shareholders and shall be
given full discretion in establishing
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the rules and procedures to be followed in conducting the meetings, except as
otherwise provided by law, the Articles of Incorporation or in these Bylaws.
Section 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by
law, written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the day of the meeting, either personally or by first-class
mail, by or at the direction of the President, the Secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If the notice is mailed at least thirty (30) days before the date
of the meeting, it may be done by a class of United States mail other than first
class. If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail addressed to the shareholder at his address as it appears
on the stock transfer books of the Corporation, with postage thereon prepaid. If
a meeting is adjourned to another time and/or place, and if an announcement of
the adjourned time and/or place is made at the meeting, it shall not be
necessary to give notice of the adjourned meeting unless the Board of Directors,
after adjournment, fixes a new record date for the adjourned meeting. Whenever
any notice is required to be given to any shareholder, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether signed
before, during or after the time of the meeting stated therein, and delivered to
the Corporation for inclusion in the minutes or filing with the corporate
records, shall be equivalent to the giving of such notice. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
shareholders need be specified in any written waiver of notice. Attendance of a
person at a meeting shall constitute a waiver of (a) lack of or defective notice
of such meeting, unless the person objects at the beginning to the holding of
the meeting or the transacting of any business at the meeting, or (b) lack of
defective notice of a particular matter at a meeting that is not within the
purpose or purposes described in the meeting notice, unless the person objects
to considering such matter when it is presented.
Section 6. BUSINESS AND NOMINATIONS FOR ANNUAL AND SPECIAL MEETINGS.
Business transacted at any special meeting shall be confined to the purposes
stated in the notice thereof. At any annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting in accordance with the requirements and procedures set forth in the
Articles of Incorporation and these Bylaws, if any. Only such persons who are
nominated for election as directors of the Corporation in accordance with the
requirements and procedures set forth in the Articles of Incorporation and these
Bylaws, if any, shall be eligible for election as directors of the Corporation.
Section 7. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of these shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or by law, a majority of the shares entitled to vote on the matter
by each voting group, represented in person or by proxy, shall constitute a
quorum at any meeting of shareholders, but in no event shall a quorum consist of
less than one-third (1/3) of the shares of each voting group entitled to
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vote. If less than a majority of outstanding shares entitled to vote are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. After a quorum has been
established at any shareholders' meeting, the subsequent withdrawal of
shareholders, so as to reduce the number of shares entitled to vote at the
meeting below the number required for a quorum, shall not affect the validity of
any action taken at the meeting or any adjournment thereof. Once a share is
represented for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for that adjourned meeting.
Section 8. VOTING PER SHARE. Except as otherwise provided in the
Articles of Incorporation or by law, each shareholder is entitled to one (1)
vote for each outstanding share held by him on each matter voted at a
shareholders' meeting.
Section 9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an
administrator, executor, guardian, personal representative, or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by such person without the transfer thereof into his name. If shares stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting shall have the following effect: (a) if only one
votes, in person or by proxy, his act binds all; (b) if more than one vote, in
person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution of
proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.
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Section 10. PROXIES. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation or such other officer or agent which is authorized to tabulate
votes, and shall be valid for up to 11 months, unless a longer period is
expressly provided in the appointment form. The death or incapacity of the
shareholder appointing a proxy does not affect the right of the Corporation to
accept the proxy's authority unless notice of the death or incapacity is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. An appointment
of a proxy is revocable by the shareholder unless the appointment is coupled
with an interest.
Section 11. SHAREHOLDER LIST. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or his agent or attorney is entitled on written demand to inspect
the shareholders' list (subject to the requirements of law), during regular
business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or his agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.
Section 12. ACTION WITHOUT MEETING. Any action required by law to be
taken at a meeting of shareholders, or any action that may be taken at a meeting
of shareholders, may be taken without a meeting or notice if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize to take such action at a meeting at which all shares
entitled to vote thereon were present and voted with respect to the subject
matter thereof, and such consent shall have the same force and effect as a vote
of shareholders taken at such a meeting.
Section 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a
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date as the record date for any such determination of shareholders, such date in
any case to be not more than seventy (70) days, and, in case of a meeting of
shareholders, not less than ten (10) days, prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If no record date is fixed for the determination of shareholders entitled to
notice of or to vote at a meeting of shareholders, or shareholders entitled to
receive payment of a dividend, the date on which the notice of the meeting is
mailed or the date on which the resolutions of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this Section
13, such determination shall apply to any adjournment thereof, except where the
Board of Directors fixes a new record date for the adjourned meeting or as
required by law.
Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment(s) thereof. If any inspector or inspectors, or judge or judges, are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors or judges. In case any person who may be appointed as an
inspector or judge fails to appear or act, the vacancy may be filled by the
Board of Directors in advance of the meeting, or at the meeting by the person
presiding thereat. The inspectors or judges, if any, shall determine the number
of shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. VOTING FOR DIRECTORS. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
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ARTICLE THREE
DIRECTORS
Section 1. NUMBER; ELECTION AND TERM; REMOVAL. The number of directors
of the Corporation shall be fixed from time to time, within the limits specified
by and as provided in the Articles of Incorporation; provided, however, that no
director's term shall be shortened by reason of a resolution reducing the number
of directors. The directors shall be elected at the annual meeting of the
shareholders, except as provided in Section 2 of this Article, and each director
elected shall hold office for the term for which he is elected and until his
successor is elected and qualified or until his earlier resignation, removal
from office or death. Directors must be natural persons who are 18 years of age
or older but need not be residents of the State of Florida, shareholders of the
Corporation or citizens of the United States. Any director may be removed at any
time, with or without cause, at a special meeting of the shareholders called for
that purpose.
Section 2. VACANCIES. A director may resign at any time by giving
written notice to the Corporation, the Board of Directors or the Chairman of the
Board. Such resignation shall take effect when the notice is delivered unless
the notice specifies a later effective date, in which event the pending vacancy
may be filled before the effective date if the successor does not take office
until the effective date. Any vacancy occurring in the Board of Directors and
any directorship to be filled by reason of an increase in the size of the Board
of Directors shall be filled as provided in the Articles of Incorporation. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, or until the next election of one or more directors
by shareholders if the vacancy is caused by an increase in the number of
directors.
Section 3. POWERS. Except as provided in the Articles of Incorporation
and by law, all corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of, its Board of Directors.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
Section 5. ANNUAL MEETING. The first meeting of each newly elected Board
of Directors shall be held, without call or notice, immediately following each
annual meeting of shareholders.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board of
Directors may be called by the Chairman of the Board or by the President and
shall be
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called by the Secretary on the written request of any two directors. Written
notice of special meetings of the Board of Directors shall be given to each
director at least forty-eight (48) hours before the meeting. Except as required
by statute, neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting. Notices to directors shall be in
writing and delivered personally or mailed to the directors at their addresses
appearing on the books of the Corporation. Notice by mail shall be deemed to be
given at the time when the same shall be received. Notice to directors may also
be given by telegram, teletype or other form of electronic communication. Notice
of a meeting of the Board of Directors need not be given to any director who
signs a written waiver of notice before, during or after the meeting. Attendance
of a director at a meeting shall constitute a waiver of notice of such meeting
and a waiver of any and all objections to the place of the meeting, the time of
the meeting and the manner in which it has been called or convened, except when
a director states, at the beginning of the meeting or promptly upon arrival at
the meeting, any objection to the transaction of business because the meeting is
not lawfully called or convened.
Section 8. QUORUM; REQUIRED VOTE; PRESUMPTION OF ASSENT. A majority of
the number of directors fixed by, or in the manner provided in, these bylaws
shall constitute a quorum for the transaction of business; provided, however,
that whenever, for any reason, a vacancy occurs in the Board of Directors, a
quorum shall consist of a majority of the remaining directors until the vacancy
has been filled. The act of a majority of the directors present at a meeting at
which a quorum is present when the vote is taken shall be the act of the Board
of Directors. A director of the Corporation who is present at a meeting of the
Board of Directors or a committee of the Board of Directors when corporate
action is taken shall be presumed to have assented to the action taken, unless
he objects at the beginning of the meeting, or promptly upon his arrival, to
holding the meeting or transacting specific business at the meeting, or he votes
against or abstains from the action taken.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or a committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this section is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT
MEETINGS. Members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation in such a meeting shall constitute presence in
person at the meeting, except where a person
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participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground the meeting is not lawfully called or
convened.
Section 11. COMMITTEES. The Board of Directors, by resolution adopted by
a majority of the full Board of Directors, may designate from among its members
one or more other committees, each of which, to the extent provided in such
resolution, shall have and may exercise all of the authority of the Board of
Directors in the business and affairs of the Corporation except where the action
of the full Board of Directors is required by statute. Each committee must have
two or more members who serve at the pleasure of the Board of Directors. The
Board of Directors, by resolution adopted in accordance with this Article Three,
may designate one or more directors as alternate members of any committee, who
may act in the place and stead of any absent member or members at any meeting of
such committee. Vacancies in the membership of a committee shall be filled by
the Board of Directors at a regular or special meeting of the Board of
Directors. Each committee shall keep minutes and other appropriate records of
its proceedings and report the same to the Board of Directors when required. The
designation of any such committee and the delegation thereto of authority shall
not operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law.
Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings. Directors may receive such other
compensation as may be approved by the Board of Directors.
Section 13. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a Chairman of the Board who shall preside at meetings of the
shareholders and of the directors. The Chairman of the Board shall have such
other powers and shall perform such other duties as shall be designated by the
Board of Directors. The Chairman of the Board shall be a member of the Board of
Directors but no other officers of the Corporation need be a director. The
Chairman of the Board shall serve until his successor is chosen and qualified,
but he may be removed at any time by the affirmative vote of a majority of the
Board of Directors.
ARTICLE FOUR
OFFICERS
Section 1. POSITIONS. The officers of the Corporation shall consist of a
President, one or more Vice Presidents, a Secretary and a Treasurer, and, if
elected by the Board of
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Directors by resolution, a Chairman of the Board. Any two or more offices may be
held by the same person.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a President, one or more Vice Presidents, a Secretary and a Treasurer.
Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.
Section 4. SALARIES. The salaries of all officers of the Corporation to
be elected by the Board of Directors pursuant to Article Four, Section 2 hereof
shall be fixed from time to time by the Board of Directors or pursuant to its
discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
Section 5. TERM; RESIGNATION. The officers of the Corporation shall hold
office until their successors are chosen and qualified. Any officer or agent
elected or appointed by the Board of Directors or the President of the
Corporation may be removed, with or without cause, by the Board of Directors.
Any officers or agents appointed by the President of the Corporation pursuant to
Section 3 of this Article Four may also be removed from such officer positions
by the President, with or without cause. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise shall be filled by
the Board of Directors, or, in the case of an officer appointed by the President
of the Corporation, by the President or the Board of Directors. Any officer of
the Corporation may resign from his respective office or position by delivering
notice to the Corporation. Such resignation is effective when delivered unless
the notice specifies a later effective date. If a resignation is made effective
at a later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date if the Board
provides that the successor does not take office until the effective date.
Section 6. PRESIDENT. The President shall be the Chief Executive Officer
of the Corporation, shall have general and active management of the business of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In the absence of the Chairman of the Board
or in the event the Board of Directors shall not have designated a Chairman of
the Board, the President shall preside at meetings of the shareholders and the
Board of Directors.
Section 7. VICE PRESIDENTS. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall
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perform such other duties and have such other powers as the Board of Directors
shall prescribe or as the President may from time to time delegate.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it.
Section 9. TREASURER. The Treasurer shall have the custody of corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors at its regular meetings or when the
Board of Directors so requires an account of all his transactions as treasurer
and of the financial condition of the Corporation. Unless otherwise specified by
the Board of Directors, the Treasurer shall be the Corporation's Chief Financial
Officer.
Section 10. OTHER OFFICERS; EMPLOYEES AND AGENTS. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to him by the Board of Directors, the officer so appointing him
and such officer or officers who may from time to time be designated by the
Board of Directors to exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. ISSUE OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled; and
such certificates shall be signed by the Chairman of the Board, President or a
Vice President, and by the Secretary or an Assistant Secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof.
Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares
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and the variations in rights, preferences and limitations determined for each
series within a class (and the authority of the Board of Directors to determine
variations for future series) shall be summarized on the front or back of each
certificate. Alternatively, each certificate may state conspicuously on its
front or back that the Corporation will furnish the shareholder a full statement
of this information on request and without charge. Every certificate
representing shares that are restricted as to the sale, disposition, or transfer
of such shares shall also indicate that such shares are restricted as to
transfer and there shall be set forth or fairly summarized upon the certificate,
or the certificate shall indicate that the Corporation will furnish to any
shareholder upon request and without charge, a full statement of such
restrictions. If the Corporation issues any shares that are not registered under
the Securities Act of 1933, as amended, or registered or qualified under
applicable state securities laws, the transfer of any such shares shall be
restricted substantially in accordance with the following legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1)
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE
STATE LAW, OR (2) AT HOLDER'S EXPENSE, AN OPINION (SATISFACTORY
TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO THE CORPORATION)
THAT REGISTRATION IS NOT REQUIRED."
Section 3. FACSIMILE SIGNATURES. The signatures of the Chairman of the
Board, the President or a Vice President and the Secretary or Assistant
Secretary upon a certificate may be facsimiles, if the certificate is manually
signed by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of the issuance.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
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<PAGE>
Section 5. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
recognize the exclusive rights of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Florida.
Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida
Business Corporation Act, if a person acquiring control shares of the
Corporation does not file an acquiring person statement with the Corporation,
the Corporation may, at the discretion of the Board of Directors, redeem the
control shares at the fair value thereof at any time during the 60-day period
after the last acquisition of such control shares. If a person acquiring control
shares of the Corporation files an acquiring person statement with the
Corporation, the control shares may be redeemed by the Corporation, at the
discretion of the Board of Directors, only if such shares are not accorded full
voting rights by the shareholders as provided by law.
ARTICLE SIX
GENERAL PROVISIONS
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of the Articles of Incorporation.
Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
Section 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31st of each year, unless otherwise fixed by resolution of the Board of
Directors.
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<PAGE>
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 6. GENDER. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENT OF BYLAWS
Unless otherwise provided by law, these Bylaws may be altered, amended
or repealed in whole or in part, or new Bylaws may be adopted, as provided in
the Articles of Incorporation.
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Exhibit 4.1
COMMON STOCK COMMON STOCK
NUMBER CAPITAL FACTORS HOLDING, INC. SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 034551 10 1
This Certifies that
Is the Registered Holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
CHAIRMAN OF THE BOARD SECRETARY
<PAGE>
CAPITAL FACTORS HOLDING, INC.
The Corporation will furnish to any shareholder upon request and without charge
a full statement of: (a) the designations, relative rights, preferences and
limitations applicable to each class of capital stock authorized to be issued;
(b) the variations in rights, preferences and limitations determined for each
series authorized to be issued within each such class: and (c) the authority of
the Board of Directors to determine such variations for subsequent series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- (Cust) _______________ Custodian (Minor) _______________
under Uniform Gifts to
Minors Act (State) _____________________
Additional abbreviations may also be used though not in the above list.
For Value Received __________________________________________ hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
shares of the
capital stock represented by the
within Certificate and does hereby irrevocably constitute and appoint __________
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
DATED: SIGNED:
SIGNED:
NOTICE: The signature(s) on this assignment must conform
in all respects with the name as written upon the face
of the certificate.
IMPORTANT: SIGNATURE(S) MUST BE GUARANTEED BY A FIRM THAT IS A MEMBER OF A
REGISTERED NATIONAL STOCK EXCHANGE OR BY A COMMERCIAL BANK OR A TRUST COMPANY.
Exhibit 10.1
---------------------------------------
CAPITAL FACTORS HOLDING, INC.
STOCK OPTION PLAN
---------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the interests of
Capital Factors Holding, Inc., a Florida corporation (the "Company"), by
providing an additional incentive to attract, retain and motivate qualified and
competent persons who are key to the Company (as hereinafter defined), including
key employees, Officers and Directors, and upon whose efforts and judgment the
success of the Company is largely dependent, through the encouragement of stock
ownership in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Bank" shall refer to Capital Bank, a Florida bank and
majority shareholder of the Company.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the Company's Compensation and
Benefits Committee.
(e) "Common Stock" shall mean the Company's Common Stock, par
value $0.01 per share.
(f) "Company" shall refer to Capital Factors Holding, Inc., a
Florida corporation, its wholly-owned subsidiary, Capital Factors, Inc., a
Florida corporation, and any additional existing or future direct or indirect
majority owned subsidiary of the Company.
(g) "Director" shall mean a member of the Board.
(h) "Disinterested Person" shall mean a Director who is not,
during the one year prior to his or her service as an administrator of this
Plan, or during such service, granted or awarded equity securities pursuant to
this Plan or any other plan of the Company or any of its affiliates, except
that:
(i) participation in a formula plan meeting the conditions
in paragraph (c)(2)(ii) of Rule 16b-3 promulgated under the Securities
Exchange Act shall not disqualify a Director from being a Disinterested
Person;
<PAGE>
(ii) participation in an ongoing securities acquisition
plan meeting the conditions in paragraph (d)(2)(i) of Rule 16b-3
promulgated under the Securities Exchange Act shall not disqualify a
Director from being a Disinterested Person; and
(iii) an election to receive an annual retainer fee in
either cash or an equivalent amount of securities, or partly in cash and
partly in securities, shall not disqualify a Director from being a
Disinterested Person.
In addition, in order to be a "Disinterested Person" a director shall be an
outside director as defined in the rules and regulations under Section 162(m) of
the Code. Such rules and regulations presently provide that a director shall not
be a current employee of the Company or, a former employee receiving
compensation from the Company for prior services (other than from a qualified
retirement plan), shall not have been an officer of the Company, and shall not
be receiving any remuneration from the Company, either directly or indirectly,
in any capacity other than as a director. Remuneration is considered received,
either directly or indirectly, by a director if:
(i) it is paid in the applicable year to the director or
to an entity in which the director has a beneficial ownership interest
of greater than 50%;
(ii) it is not de minimis, and was paid in the prior year
to an entity in which the director has a beneficial interest of at least
5% but not more than 50%; or
(iii) it is not de minimis, and was paid in the prior year
to an entity in which the director is employed or self-employed other
than as a director.
For the purposes hereof, remuneration paid for goods or services shall be
considered to be de minimis if the amount paid by the Company in its preceding
taxable year does not exceed 5% of the recipient's gross revenues. However,
remuneration in excess of $60,000 paid to an entity is not de minimis if it is
paid to an entity described in (ii) above (one in which the director owns from a
5% to 50% interest), or if it is paid for personal services to an entity
described in (iii) above (one by which the director is employed but owns less
than a 5% interest).
(i) "Effective Date" shall mean the commencement date of the
Company's initial public offering of Common Stock as contemplated by the
Company's Registration Statement on Form S-1 (Registration No. 333-3419)
initially filed with the Securities and Exchange Commission on May 9, 1996.
(j) "Eighty Percent Control" shall refer to control of the
Company within the meaning of Section 368(c) of the Code, that is ownership of
at least 80 percent of the total combined voting power of all classes of stock
entitled to vote for directors of the
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Company and at least 80 percent of the total number of shares of each other
class of stock of the Company, all as defined in Section 368(c) of the Code.
(k) "Eighty Percent Holder" shall refer to Bank or any designee
of the Bank or any previous designee of the Bank to whom or which the Bank or
such previous designee has transferred Eighty Percent Control.
(l) "Eighty Percent Period" shall refer to that period during
which any Eighty Percent Holder has Eighty Percent Control.
(m) "Employee Director" shall mean a member of the Board who is
also an employee of the Company or a Subsidiary.
(n) "Fair Market Value" of a Share on any date of reference shall
be the "Closing Price" (as defined below) of the Common Stock on the business
day immediately preceding such date, unless the Committee in its sole discretion
shall determine otherwise in a fair and uniform manner. For the purpose of
determining Fair Market Value, the "Closing Price" of the Common Stock on any
business day shall be (i) if the Common Stock is listed or admitted for trading
on any United States national securities exchange, or if actual transactions are
otherwise reported on a consolidated transaction reporting system, the last
reported sale price of Common Stock on such exchange or reporting system, as
reported in any newspaper of general circulation, (ii) if the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotations
System ("Nasdaq"), or any similar system of automated dissemination of
quotations of securities prices in common use, the last reported sale price of
Common Stock for such day on such system, or (iii) if neither clause (i) or (ii)
is applicable, the mean between the high bid and low asked quotations for the
Common Stock as reported by the National Quotation Bureau, Incorporated if at
least two securities dealers have inserted both bid and asked quotations for
Common Stock on at least five of the ten preceding days.
(o) "Incentive Stock Option" shall mean an incentive stock option
as defined in Section 422 of the Code.
(p) "Non-Employee Director" shall mean a member of the Board who
is not an employee of the Company or a Subsidiary.
(q) "Non-Qualified Stock Option" shall mean an Option which is
not an Incentive Stock Option.
(r) "Officer" shall mean the Company's president, principal
financial officer, principal accounting officer (or, if there is no such
accounting officer, the controller), any vice-president of the Company in charge
of a principal business unit, division or function (such as administration or
finance), any other officer who performs a policy-making function, or any other
person who performs similar policy-making functions for the Company.
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<PAGE>
Officers of Subsidiaries shall be deemed Officers of the Company if they perform
such policy-making functions for the Company. As used in this paragraph, the
phrase "policy-making function" does not include policy-making functions that
are not significant. Unless specified otherwise in a resolution by the Board, an
"executive officer" pursuant to Item 401(b) of Regulation S-K (17 C.F.R. ss.
229.401(b)) shall be only such person designated as an "Officer" pursuant to the
foregoing provisions of this paragraph.
(s) "Option" (when capitalized) shall mean any option granted
under this Plan.
(t) "Optionee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(u) "Plan" shall mean this Stock Option Plan for the Company.
(v) "SAR" shall mean a stock appreciation right.
(w) "Securities Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
(x) "Share(s)" shall mean a share or shares of the Common Stock.
(y) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. SHARES AND OPTIONS. The Company may grant to Optionees from time to
time Options to purchase an aggregate of up to 800,000 Shares from authorized
and unissued Shares. If any Option granted under the Plan shall terminate,
expire, or be canceled or surrendered as to any Shares, new Options may
thereafter be granted covering such Shares. Subject to the provisions of Section
15 hereof, an Option granted hereunder shall be either an Incentive Stock Option
or a Non-Qualified Stock Option as determined by the Committee at the time of
grant of such Option and shall clearly state whether it is an Incentive Stock
Option or Non-Qualified Stock Option. All Incentive Stock Options shall be
granted within 10 years from the effective date of this Plan.
4. DOLLAR LIMITATION. Options otherwise qualifying as Incentive Stock
Options hereunder will not be treated as Incentive Stock Options to the extent
that the aggregate Fair Market Value (determined at the time the Option is
granted) of the Shares, with respect to which Options meeting the requirements
of Code Section 422(b) are exercisable
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<PAGE>
for the first time by any individual during any calendar year (under all plans
of the Company and any Subsidiary), exceeds $100,000.
5. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement that
may contain any term deemed necessary or desirable by the Committee, provided
such terms are not inconsistent with this Plan or any applicable law. In
addition to Non-Employee Directors (who shall receive Options only pursuant to
Section 16 of this Plan), Optionees shall be those persons selected by the
Committee from the class of all regular employees of the Company or its
Subsidiaries, including Employee Directors and Officers who are regular
employees of the Company. Any person who files with the Committee, in a form
satisfactory to the Committee, a written waiver of eligibility to receive any
Option under this Plan shall not be eligible to receive any Option under this
Plan for the duration of such waiver.
(b) In granting Options to employees of the Company or its
Subsidiaries, the Committee shall take into consideration the contribution the
person has made to the success of the Company or its Subsidiaries and such other
factors as the Committee shall determine. The Committee shall also have the
authority to consult with and receive recommendations from officers and other
personnel of the Company and its Subsidiaries with regard to these matters. The
Committee may from time to time in granting Options to employees of the Company
or its Subsidiaries under the Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
(i) prescribing the date or dates on which the Option becomes exercisable, (ii)
providing that the Option rights accrue or become exercisable in installments
over a period of years, upon termination of the Eighty Percent Period, the
consent of the Eighty Percent Holder and/or the attainment of stated goals, or
(iii) relating an Option to the continued employment of the Optionee for a
specified period of time, provided that such terms and conditions are not more
favorable to an Optionee than those expressly permitted herein.
(c) The Options granted to employees under this Plan shall be in
addition to regular salaries, pension, life insurance or other benefits related
to their employment with the Company or its Subsidiaries. Neither the Plan nor
any Option granted under the Plan shall confer upon any person any right to
employment or continuance of employment by the Company or its Subsidiaries.
(d) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, Options may not be granted to
(i) an Officer or Employee Director unless the grant of such Options is
authorized by, and all of the terms of such Options are determined by, a
Committee that is appointed in accordance with Section 14 of this Plan and all
of whose members are Disinterested Persons, or (ii) a Non-Employee Director
unless the grant of such Options is made in accordance with Section 16 of this
Plan.
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<PAGE>
(e) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, the aggregate number of Options
granted to any one Director, Officer or employee may not exceed 35% of the total
number of options available for grant under the Plan.
6. OPTION PRICE. The option price per Share of any Option shall be any
price determined by the Committee but shall not be less than the par value per
Share; provided, however, that in no event shall the option price per Share of
any Incentive Stock Option or Option granted pursuant to Section 16 of this Plan
be less than the Fair Market Value of the Shares underlying such Option on the
date such Option is granted.
7. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i) the
Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee in its sole discretion have been made for
the Optionee's payment to the Company of the amount that is necessary for the
Company or Subsidiary employing the Optionee to withhold in accordance with
applicable Federal or state tax withholding requirements. Unless further limited
by the Committee in any Option, the option price of any Shares purchased shall
be paid in cash, by certified or official bank check, by money order, with
Shares or by a combination of the above; provided further, however, that the
Committee in its sole discretion may accept a personal check in full or partial
payment of any Shares. If the exercise price is paid in whole or in part with
Shares, the value of the Shares surrendered shall be their Fair Market Value on
the date the Option is exercised. The Company in its sole discretion may, on an
individual basis or pursuant to a general program established in connection with
this Plan, and subject to applicable law, lend money to an Optionee, guarantee a
loan to an Optionee, or otherwise assist an Optionee to obtain the cash
necessary to exercise all or a portion of an Option granted hereunder or to pay
any tax liability of the Optionee attributable to such exercise. If the exercise
price is paid in whole or part with Optionee's promissory note, such note shall
(i) provide for full recourse to the maker, (ii) be collateralized by the pledge
of the Shares that the Optionee purchases upon exercise of such Option, (iii)
bear interest at a rate no less than the prime rate of the Company's principal
lender, and (iv) contain such other terms as the Board in its sole discretion
shall reasonably require. No Optionee shall be deemed to be a holder of any
Shares subject to an Option unless and until a stock certificate or certificates
for such Shares are issued to such person(s) under the terms of this Plan. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 11 hereof.
8. EXERCISABILITY OF OPTIONS. Except as provided in Section 9 hereof or
otherwise provided in this Section 8, any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee shall
provide in such Option.
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<PAGE>
(a) The expiration date of an Option shall be determined by the
Committee at the time of grant, but in no event shall an Option be exercisable
after the expiration of 10 years from the date of grant of the Option.
(b) Unless otherwise provided in any Option, each outstanding
Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall include a
series of transactions occurring within 60 days or occurring pursuant to
a plan), that has the result that shareholders of the Company
immediately before such transaction cease to own at least 51 percent of
the voting stock of the Company or of any entity that results from the
participation of the Company in a reorganization, consolidation, merger,
liquidation or any other form of corporate transaction;
(ii) if the shareholders of the Company shall approve a
plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless the approved
merger, consolidation, reorganization, liquidation or dissolution is
subsequently abandoned); or
(iii) if the shareholders of the Company shall approve a
plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such
plan is subsequently abandoned);
provided, however, that this Section 8(b) shall not apply to accelerate the
exercisability of any Option if all or part of the shares in the Company are
distributed to Capital Bank, Capital Bancorp, to shareholders of Capital Bancorp
or to any of their affiliates, regardless of the manner in which such Shares are
distributed.
(c) Except with respect to an Option granted pursuant to Section
15 of this Plan, and subject to the restrictions of Section 9, the Committee may
in its sole discretion accelerate the date on which any Option may be exercised
and may accelerate the vesting of any Shares subject to any Option or previously
acquired by the exercise of any Option.
9. RESTRICTIONS ON GRANT AND EXERCISE OF OPTIONS DURING EIGHTY PERCENT
PERIOD; CONVERSION TO SARS.
(a) During the Eighty Percent Period, Options to purchase no more
than 200,000 shares of Common Stock may be granted under the Plan without the
restrictions on exercise set forth in the next two sentences of this Section
9(a). Options to purchase any additional shares issuable under the Plan, even if
vested pursuant to the terms of such Options, may not be exercised by an
Optionee without the prior written approval of the Eighty Percent Holder during
the Eighty Percent Period. Optionees desiring to exercise such Options, must
make written inquiry of the Company and the Eighty Percent Holder requesting
approval of any such exercise, prior to exercising any such Options during the
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<PAGE>
Eighty Percent Period. The Eighty Percent Holder may, in its sole discretion,
consent to the removal or limitation of the restrictions contained in this
Section 9 (a).
(b) Each Non-Qualified Stock Option or portion thereof subject to
the restrictions contained in Section 9(a) requiring approval by the Eighty
Percent Holder in order to be exercised shall be issued accompanied by an SAR.
The SARs shall be exercisable as provided by the Committee in the Non-Qualified
Stock Option, but in no event prior to April 15, 2001, and then only in the
event that the Eighty Percent Holder does not provide written approval of the
Optionee's exercise of such vested Non-Qualified Stock Option or vested portion
thereof which is subject to the restrictions set forth in Section 9(a) above and
only during the Eighty Percent Period. Each such SAR shall be exercisable with
respect to the same number of shares of Common Stock that are subject to
restriction pursuant to the vested Non-Qualified Stock Option or vested portion
thereof that the Optionee requested to exercise. Upon the Optionee's exercise of
such SAR, the Optionee shall be paid, in cash, an amount equal to the product of
(i) the amount by which the Fair Market Value per share of Common Stock on the
date on which the SAR is exercised exceeds the exercise price per share of
Common Stock prescribed in the SAR (former Non-Qualified Stock Option) and (ii)
the number of shares subject to the exercisable portion of the SAR with respect
to which the Optionee has requested the ability to exercise. Any exercise of an
SAR by an Optionee shall only occur during the period beginning on the third
business day following the release by the Company of its quarterly or annual
financial results and ending on the last business day of the quarter in which
such release was made.
(c) Each and every SAR accompanying a Non-Qualified Stock Option
shall be subject to the same provisions and restrictions relating to
Non-Qualified Stock Options as are set forth in this Plan. In the event that any
Optionee's employment by the Company or any Subsidiary or service as a Director
of the Company shall terminate, any SARs held by any such Optionee on the date
of such termination may be exercised during the same period, by the same person
or persons, and to the same extent as any Non-Qualified Stock Options may, or
would be exercised by such Optionee.
(d) The restrictions set forth in this Section 9 and the SARs
shall immediately terminate at such time as there is no Eighty Percent Holder.
10. TERMINATION OF OPTION PERIOD.
(a) The unexercised portion of any Option, other than an Option
granted pursuant to Section 16 hereof, shall automatically and without notice
terminate and become null and void at the time of the earliest to occur of the
following:
(i) three months after the date on which the Optionee's
employment is terminated for any reason other than by reason of (A)
Cause, which, shall mean "Cause" under Optionee's employment agreement,
if any, or which, solely for
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<PAGE>
purposes of this Plan, shall mean the termination of the Optionee's
employment (or, in the case of non-employee Directors, the removal of
the Optionee as a Director) by reason of any act or any failure to act,
by the Optionee that constitutes (1) misfeasance or malfeasance in
connection with the performance by him of his duties and
responsibilities as an employee or Director of the Company; (2) fraud,
embezzlement or breach of trust; (3) any criminal act other than minor
traffic infractions; or (4) the willful or knowing refusal by the
Optionee to perform substantially all or any portion of his duties and
responsibilities as an employee or Director of the Company; (B) a mental
or physical disability as determined by a medical doctor satisfactory to
the Committee, or (C) death;
(ii) immediately upon the termination of the Optionee's
employment for Cause;
(iii) twelve months after the date on which the Optionee's
employment is terminated by reason of a mental or physical disability
(within the meaning of Code Section 22(e)) as determined by a medical
doctor satisfactory to the Committee; or
(iv) (A) twelve months after the date of termination of
the Optionee's employment by reason of death of the employee, or (B)
three months after the date on which the Optionee shall die if such
death shall occur during the one year period specified in Subsection
9(a)(iii) hereof; provided, however, that the Committee may adjust these
terms, in its sole discretion, with respect to any Option that contains
restrictions pursuant to Section 9 of this Plan.
(b) The Committee in its sole discretion may by giving written
notice ("cancellation notice") cancel, effective upon the date of the
consummation of any corporate transaction described in Subsections 8(b)(ii) or
(iii) hereof, any Option that remains unexercised on such date. Such
cancellation notice shall be given a reasonable period of time prior to the
proposed date of such cancellation and may be given either before or after
approval of such corporate transaction.
11. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the maximum
number of Shares available for grant under the Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue
to be subject to being so optioned; and
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<PAGE>
(ii) appropriate adjustment shall be made in the number of
Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued
and outstanding Shares shall remain subject to purchase at the same
aggregate exercise price.
(b) Subject to the specific terms of any Option, the Committee
may change the terms of Options outstanding under this Plan, subject to written
approval of the during the Eighty Percent Holder during the Eighty Percent
Period, including with respect to the option price or the number of Shares
subject to the Options, or both, when, in the Committee's sole discretion, such
adjustments become appropriate by reason of a corporate transaction described in
Subsections 8(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the issuance
by the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection with
direct sale or upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to the number of or exercise price of Shares
then subject to outstanding Options granted under the Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise; although the foregoing shall remain subject to the
provisions in the Company's Amended and Restated Articles of Incorporation.
12. TRANSFERABILITY OF OPTIONS. Each Option shall provide that such
Option shall not be transferable by the Optionee otherwise than by will or the
laws of descent and distribution, and each Option shall be exercisable during
the Optionee's lifetime only by the Optionee.
13. ISSUANCE OF SHARES. As a condition of any sale or issuance of Shares
upon exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Optionee to the
Company, at the time any Option is exercised, that he is acquiring the
Shares to be issued to
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<PAGE>
him for investment and not with a view to, or for sale in connection
with, the distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to be
bound by any legends that are, in the opinion of the Committee,
necessary or appropriate to comply with the provisions of any securities
law deemed by the Committee to be applicable to the issuance of the
Shares and are endorsed upon the Share certificates.
14. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee, which shall
consist of not less than two Directors, each of whom shall be Disinterested
Persons to the extent required by Section 5(d) hereof, provided that the
Committee shall not have any discretion with respect to the grant of Options to
Non-Employee Directors pursuant to Section 16 of this Plan. The Committee shall
have all of the powers of the Board with respect to the Plan. Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board and any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The Committee's
determinations and its interpretation and construction of any provision of the
Plan shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written approval of the
members of the Committee.
15. INCENTIVE OPTIONS FOR 10% SHAREHOLDERS. Notwithstanding any other
provisions of the Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly or indirectly (through attribution under
Section 424(d) of the Code) at the date of grant, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or of
its subsidiary [as defined in Section 424 of the Code] at the date of grant)
unless the option price of such Option is at least 110% of the Fair Market Value
of the Shares subject to such Option on the date the Option is granted, and such
Option by its terms is not exercisable after the expiration of five years from
the date such Option is granted.
16. FORMULA GRANTS TO NON-EMPLOYEE DIRECTORS. Each Non-Employee Director
will receive (i) on the later of the date of his or her appointment as a
Director or the Effective Date, a Non-Qualified Stock Option to purchase 10,000
shares of Common Stock, and (ii) on the date of each annual meeting of the
Company's shareholders, beginning with the first such annual meeting that occurs
after December 31, 1996, if such person continues to serve as a director on such
date, a Non-Qualified Stock Option to purchase 2,000 shares of Common Stock.
During the Eighty Percent Period, such Options granted on the Effective
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<PAGE>
Date shall be subject to the restrictions of Section 9 on a pro-rata basis with
all other Options granted on the Effective Date and shall be accompanied by SARs
on the same pro-rata basis. Thereafter, during the Eighty Percent Period, all
such Options shall be subject to the restrictions of Section 9 and shall be
accompanied by SARs. All such SARs will have the same terms and conditions as
provided in Sections 9(b) - (d). Subject to the restrictions set forth in
Section 9, such Options will become exercisable for 20% of the shares on the
first anniversary date of grant and the balance in equal annual installments
over the four-year period thereafter. The per share exercise price of all
Options granted to Non-Employee Directors pursuant to this Section 16 will be
equal to the Fair Market Value of the Shares underlying such Option. The
unexercised portion of any Option granted pursuant to this Section 16 shall
become null and void (i) three months after the date on which such Non-Employee
Director ceases to be a Director for any reason other than for mental or
physical disability or death of the Non-Employee Director, or (ii) twelve months
after the mental or physical disability or death of the Non-Employee Director,
PROVIDED, HOWEVER, if an Option granted to a Non-Employee Director is subject to
the restrictions set forth in Section 9 hereof at the time such Non-Employee
Director ceases to be a Director, then, the foregoing periods of exercisability
shall not commence until such restrictions terminate, or until the SAR
accompanying the Option is exercisable, whichever is earlier, and for the period
contained in (i) or (ii) above, whichever is applicable. If the exercise term of
the Option expires while the Option is still subject to Section 9 hereof, then
the Option (or SAR) shall be exercisable for three months after the termination
of such restrictions or its exercisability as an SAR, whichever is earlier.
17. INTERPRETATION.
(a) The Plan shall be administered and interpreted so that all
Incentive Stock Options granted under the Plan will qualify as Incentive Stock
Options under section 422 of the Code. If any provision of the Plan should be
held invalid for the granting of Incentive Stock Options or illegal for any
reason, such determination shall not affect the remaining provisions hereof, but
instead the Plan shall be construed and enforced as if such provision had never
been included in the Plan.
(b) This Plan shall be governed by the laws of the State of
Florida.
(c) Headings contained in this Plan are for convenience only and
shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
18. AMENDMENT AND DISCONTINUATION OF THE PLAN.
(a) Either the Board or the Committee may from time to time amend
the Plan or any Option; provided, however, that, except to the extent provided
in Section 11,
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<PAGE>
no such amendment may, without approval by the shareholders of the Company, (i)
materially increase the benefits accruing to participants under the Plan, (ii)
materially increase the number of securities which may be issued under the Plan,
or (iii) materially modify the requirements as to eligibility for participation
in the Plan; and provided further, that, except to the extent provided in
Section 10, no amendment or suspension of the Plan or any Option issued
hereunder shall substantially impair any Option previously granted to any
Optionee without the consent of such Optionee.
(b) Notwithstanding anything herein to the contrary, the
provisions of this Plan which govern the number of Options to be awarded to
Non-Employee Directors, the exercise price per share under each such Option,
when and under what circumstances such Option will be granted and the period
within which each such Option may be exercised, shall not be amended more than
once every six months (even with shareholder approval), other than to conform to
changes to the Code, or the rules promulgated thereunder, and under the Employee
Retirement Income Security Act of 1974, as amended, or the rules promulgated
thereunder, or with rules promulgated by the Securities and Exchange Commission.
19. EFFECTIVE DATE AND TERMINATION DATE. The Plan shall be effective
upon the Effective Date and shall terminate on the 10th anniversary of the
Effective Date.
- 13 -
Exhibit 10.2
CAPITAL BANCORP EMPLOYEES' PENSION PLAN
(AS AMENDED 1994)
<PAGE>
TABLE OF CONTENTS
Page No.
ARTICLE 1 - DEFINITIONS
1.1 Accrued Benefit 1
1.2 Actuarial Equivalent 2
1.3 Anniversary Date 4
1.4 Annuity 4
1.5 Annuity Starting Date 4
1.6 Applicable Computation Period 4
1.7 Average Compensation 4
1.8 Beneficiary 5
1.9 Board of Directors 5
1.10 Code 5
1.11 Committee 5
1.12 Company 5
1.13 Compensation 5
1.14 Controlled or Affiliated Service Group 7
1.15 Covered Compensation 7
1.16 Defined Benefit Plan -
Defined Contribution Plan 8
1.17 Disability 8
1.18 Earliest Commencement Date 8
1.19 Effective Date/Supplemental Effective
Date 8
1.20 Election Period 8
1.21 Employee/Eligible Employee/Leased Employee 8
1.22 Employer 9
1.23 ERISA 9
1.24 Highly Compensated Employee/
Nonhighly Compensated Employee 9
1.25 Normal Form of Retirement Income 12
1.26 PBGC 12
1.27 Participant (Active, Inactive,
Retired and Vested) 12
1.28 Plan 12
1.29 Plan Year 12
1.30 Protected Spouse 12
1.31 Qualified Domestic Relations Order 12
1.32 Retirement 13
1.33 Retirement Dates (Normal, Early,
Deferred and Disability) 13
1.34 Service (Break-in-Service, Month of
Service, Year of Service, Hour of
Employment) 13
1.35 Social Security Retirement Age 15
1.36 Straight Life Annuity 16
1.37 Trust Agreement 16
1.38 Trustee 16
1.39 Trust Fund 16
<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE 2 - ELIGIBILITY AND PARTICIPATION
2.1 Eligibility for Participation 17
2.2 Change in Employment Status 17
ARTICLE 3 - CONTRIBUTIONS
3.1 Company Contributions 19
3.2 Participant Contributions 19
3.3 Payment of Contributions 19
3.4 Management of Trust Fund 19
3.5 Payment of Expenses 19
ARTICLE 4 - AMOUNT OF RETIREMENT INCOME
4.1 Upon Normal Retirement Date 20
4.2 Upon Deferred Retirement Date 21
4.3 Upon Early or Disability Retirement 21
4.4 Upon Other Termination of Employment 22
4.5 Maximum Benefit Limitation 22
ARTICLE 5 - BENEFITS PAYABLE UPON TERMINATION OF EMPLOYMENT
5.1 Upon Retirement 26
5.2 Special Rules Upon Disability Retirement 26
5.3 Upon Other Termination of Employment 27
5.4 Reemployment and Repayment of Benefits 27
ARTICLE 6 - OPTIONAL FORMS OF RETIREMENT INCOME
6.1 Optional Forms 29
6.2 Rules and Regulations 30
6.3 Automatic Spouse Benefit 31
ARTICLE 7 - BENEFITS PAYABLE UPON DEATH
7.1 Before Income Commencement 32
7.2 Subsequent to Income Commencement 33
7.3 Definition and Rules Governing Death
Benefits 33
<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE 8 - REGULATIONS GOVERNING PAYMENT OF BENEFITS
8.1 Duplication of Benefits 35
8.2 Claim Procedure for Benefits 35
8.3 Commencement of Benefits 36
8.4 Method and Form of Payment of Benefits 39
8.5 Disposition of Unclaimed Benefits 41
8.6 Non-Assignability 41
8.7 Substitute Payee 41
8.8 Satisfaction of Liability 42
8.9 Limit For 25 Highest Paid Employees 42
8.10 Direct Rollover to Eligible Retirement Plans 46
ARTICLE 9 - ADMINISTRATION OF THE PLAN
9.1 Assignment of Administrative Authority 48
9.2 Organization and Operation of the Committee 48
9.3 Authority and Responsibility 49
9.4 Records and Reports 50
9.5 Required Information 50
9.6 Fiduciary Liability 50
9.7 Payment of Expenses 51
9.8 Indemnification 51
9.9 Qualified Domestic Relations Orders 51
ARTICLE 10 - AMENDMENT, MERGER AND TERMINATION OF THE PLAN
10.1 Amendment
10.2 Merger of Plans 55
10.3 Partial Termination 56
10.4 Termination 56
ARTICLE 11 - PARTICIPATING COMPANIES
11.1 Adoption by Other Entities 60
11.2 Actuarial Valuation 60
11.3 Alternative Provisions 60
11.4 Right to Withdraw 60
11.5 Procedure Upon Withdrawal 60
ARTICLE 12 - TOP-HEAVY PROVISIONS
12.1 Top-Heavy Provisions 62
12.2 Definitions 62
12.3 Minimum Accrued Benefit 65
12.4 Minimum Vesting 66
12.5 Limitation on Benefits 66
<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE 13 - GENERAL PROVISIONS
13.1 Exclusiveness of Benefits 67
13.2 Limitation of Rights 67
13.3 Construction of Agreement 67
13.4 Severability 67
13.5 Titles and Headings 68
13.6 Counterparts as Original 68
<PAGE>
CAPITAL BANCORP EMPLOYEES' PENSION PLAN
(AS AMENDED 1994)
STATEMENT OF PURPOSE
Capital Bancorp has had in effect since January 1, 1983 the Capital Bancorp
Employees' Pension Plan, to which it made contributions for the purpose of
providing benefits for its eligible employees and their beneficiaries, in the
manner and to the extent set forth in such plan, which plan was fully restated
in 1985 and 1989.
The Capital Bancorp Employees' Pension Plan (As Amended 1994), hereinafter set
forth, and its related trust agreement constitutes an amendment in its entirety
to said plan which is continued effective as of January 1, 1994 with respect to
employees and participants who have not yet retired, terminated employment or
died as of such date. The rights of anyone covered under the plan before January
1, 1994, who retired, terminated employment or died before that date, shall be
determined in accordance with the terms and provisions of the plan in effect on
the date of such retirement, termination of employment or death, except as
otherwise specifically provided herein.
ARTICLE 1
DEFINITIONS
For purposes of the Plan, the following words and phrases shall have the
following meanings unless a different meaning is plainly required by the
context. Wherever used, the masculine pronoun shall include the feminine pronoun
and the feminine pronoun shall include the masculine and the singular shall
include the plural and the plural shall include the singular.
1.1 "ACCRUED BENEFIT"
(a) The Normal Form of Retirement Income payable at Normal
Retirement Date in an amount equal to the benefit under
Subsection 4.1(a), on the basis of the Participant's
Average Compensation, Covered Compensation, and Credited
Service to the date he last ceased to be an Active
Participant.
(b) In no event shall a Participant's Accrued Benefit be less
than the Accrued Benefit as of any preceding day except as
provided under Internal Revenue Service Notice 88-131.
(c) Notwithstanding the above and except as provided under
Internal Revenue Service Notice 88-131, the Actuarial
Equivalent of the Accrued Benefit payable in any form or
at any time shall not be less than the benefit, in such
form and at such time, which would have been payable in
accordance with the terms and rates specified in the Plan
1
<PAGE>
before the adoption of any amendment affecting Accrued
Benefits based on the Participant's Accrued Benefit at
such date of adoption.
1.2 "ACTUARIAL EQUIVALENT"
A form of benefit differing in time, period or manner of payment,
that replaces another and has the same value, based on actuarial
assumptions, as the benefit or amount it replaces. Before the date
of adoption of this restated Plan by the Board of Directors,
Actuarial Equivalencies shall be determined on the basis of the
provisions of the Plan then in effect. On or after such date,
Actuarial Equivalencies shall be determined as follows:
(a) For purposes of determining the lump sum value of any
benefit payable, an interest rate of 8%, compounded
annually and mortality rates in accordance with UP84 shall
be used.
For Participants eligible for Retirement or whose benefit
commences in accordance with Subsection 8.3(h) prior to
eligibility for Retirement, such lump sum shall be valued
as an immediate benefit. Notwithstanding the foregoing, if
such Participant is eligible for Early Retirement, the
value of such lump sum shall not be less than the value of
the deferred benefit commencing at his Normal Retirement
Date.
In the event of termination of employment under Section
5.3, the lump sum payable to a Vested Participant shall be
determined as the value of a deferred benefit commencing at
his Normal Retirement Date. If such Vested Participant had
completed 10 Years of Service as of the date of termination
of employment, the lump sum value payable on or after his
attainment of age 55 shall be determined as the value of an
immediate benefit as of the date selected for payment.
(b) For purposes of determining the amount of any optional form
of retirement income payable other than a lump sum
distribution, an interest rate of 8% per year, compounded
annually, and mortality rates in accordance with UP84 shall
be used.
(c) If any benefit is payable before a Participant's Normal
Retirement Date, the Participant's Accrued Benefit will
be reduced by 5/9 of 1% for each of the first 60 months and
5/18 of 1% for each of the next 60 months by which the
commencement of benefits precedes the Participant's
Normal Retirement Date. If any benefit is to commence more
than 120 months before a Participant's Normal Retirement
Date, the Accrued Benefit will be additionally reduced by a
7.5% annual discount factor, charged monthly. Such
reductions shall not apply to a Participant eligible for
Disability on or after age 65.
(d) If any benefit determined as of or after a Participant's
Normal Retirement Date is payable at a later date, it shall
be increased at the rate of 8% per year, compounded
2
<PAGE>
annually, with respect to the period commencement is
deferred.
(e) If the commencement of any survivorship benefit is
deferred by a Participant's Protected Spouse in
accordance with Subsection 8.3(i), the lifetime income
payable upon commencement will be based on factors as if
the Participant had survived but did not continue in or
return to Service with the Employer on or after the date
of his death and had elected to commence benefits on such
deferred date.
(f) For purposes of determining the dollar limitation in
accordance with Subsection 4.5(b)(i), Actuarial
Equivalent shall mean
(i) for any benefit commencing before the
Participant's Social Security Retirement Age,
such dollar limitation shall be reduced by
5/9 of one percent for each of the first 36
months and 5/12 of one percent for each of
the additional months (to a maximum of 24
months) by which benefits commence before the
month of the Participant's Social Security
Retirement Age and after the Participant's
attainment of age 62. For any benefit
commencing before the Participant's attainment
of age 62, the dollar limitation will be
additionally reduced for each month by which
benefits commence before the month in which
the Participant attains age 62 by the greater
of the reduction determined (A) under
Subsection (c) or (B) by using an interest
rate of 5% and mortality rates in accordance
with UP84.
(ii) for any benefit commencing after the
Participant's Social Security Retirement Age,
such dollar limitation shall be adjusted by
using an interest rate of 5% and mortality
rates in accordance with UP84, with respect to
the period benefits are
deferred.
Notwithstanding the above, adjustments will not reflect the
mortality rates to the extent that benefits will not be
forfeited upon the death of the Participant.
(g) For purposes of Subsection 4.5(c), Actuarial Equivalent
shall mean the lesser of the adjusted benefit as determined
above or using an interest rate of 5% and mortality rates
in accordance with UP84.
Notwithstanding the above, the lump sum value of any benefit or the
amount of any period certain option payable to a Participant on or
after the first day of the Plan Year beginning in 1987 shall not be
less than the amount which is equivalent to the present value of his
Accrued Benefit determined using the Applicable Interest Rate and
mortality rates in accordance with UP84. The lump sum value of any
survivor annuity payable to a Participant's spouse shall not be less
than the present value
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determined using the Applicable Interest Rate and mortality rates
in accordance with UP84.
"Applicable Interest Rate" shall mean the interest rate or rates on
the Anniversary Date preceding or coincident with the date selected
for the payment of the benefit which would be used by the PBGC for
purposes of determining the present value of a lump sum distribution
on plan termination had the Plan terminated with insufficient assets
to provide guaranteed benefits if the present value of such benefit
does not exceed $25,000 and 120% of such interest rates if such
present value exceeds $25,000, provided that the value based on 120%
of such rates is not less than $25,000.
1.3 "ANNIVERSARY DATE"
Each January 1 after the Effective Date.
1.4 "ANNUITY"
A nontransferable single premium annuity contract or an annuity
under a group annuity contract purchased by the Trustee on behalf of
a Participant or Beneficiary from an insurance company for purposes
of providing the benefits payable under the terms of the Plan.
1.5 "ANNUITY STARTING DATE"
The first day of the first period for which an amount is payable as
an annuity or in the case of a benefit not payable in the form of an
annuity, the first day on which all events have occurred which
entitle the Participant to such benefit.
1.6 "APPLICABLE COMPUTATION PERIOD"
(a) For purposes of Hours of Employment for eligibility in
accordance with Section 2.1, an Eligible Employee's first
Applicable Computation Period shall be the 12-month
period beginning as of the date a person first completed an
Hour of Employment with an Employer. Thereafter, such
Eligible Employee's Applicable Computation Period shall
be each Plan Year, commencing with the Plan Year which
begins after the date he first completed an Hour of
Employment.
(b) For all other purposes, Applicable Computation Period shall
be the 12-month period beginning as of the first day of the
month during which a person first completed an Hour of
Employment with the Employer and each anniversary thereof.
1.7 "AVERAGE COMPENSATION"
The Compensation of a Participant averaged over the five consecutive
Plan Years which produce the highest average of the 10 consecutive
Plan Years (or the number of full and fractional Plan Years
beginning with January 1, 1983, if less than 10) ending before the
first day of the month coincident with or next
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following the Participant's Normal or actual Retirement Date,
whichever is applicable, or if applicable and earlier, the first day
of the month following the date such Participant ceases to be an
Active Participant.
Notwithstanding the foregoing, for purposes of Disability
Retirement, a Participant's Average Compensation shall be determined
as of his attainment of age 65, based on the assumption that his
Compensation determined as of the Anniversary Date coincident with
or immediately preceding his Disability Retirement Date remains
constant to his attainment of age 65 or the date of cessation of
Disability, if earlier.
Notwithstanding the above, Compensation for a Plan Year during which
a Participant (a) performs no Service or (b) completes less than
nine Months of Service shall not be included in determining Average
Compensation.
1.8 "BENEFICIARY"
The person designated to receive benefits payable under the Plan in
the event of death. In the event a Beneficiary is not designated,
the Participant's surviving spouse shall be deemed his Beneficiary
or in the absence of a surviving spouse, the benefits shall be paid
to the Participant's estate.
1.9 "BOARD OF DIRECTORS"
The Board of Directors of Capital Bancorp.
1.10 "CODE"
The Internal Revenue Code of 1986, as it may from time to time be
amended or supplemented.
1.11 "COMMITTEE"
The persons appointed in accordance with Section 9.1 to administer
the Plan.
1.12 "COMPANY"
(a) Capital Bancorp and any successor which shall maintain
this Plan; and
(b) any other business entity which duly adopts the Plan with
the approval of the Board of Directors.
1.13 "COMPENSATION"
(a) Unless otherwise indicated, the amount described in
Subsection (c), exclusive of any (i) amount which is paid
by the Employer but not by the Company; (ii) amount paid
by the Company for any period during which the
Participant's employment status did not meet the
requirements of Section 1.14 and (iii) welfare benefits,
fringe benefits (cash and
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non-cash), reimbursements of other expense allowances,
moving expenses and deferred compensation.
Compensation for a Participant as the result of a period of
absence due to an approved leave of absence or Disability
shall include imputed Compensation. Determination of the
amount of imputed Compensation will be based on
Compensation reasonably representative of what such
Participant would have received during the period if the
Participant has continued to perform services.
(b) For purposes of Section 4.5, the Participant's wages for
the Plan Year paid by the Employer of the type reported
in box 10 of Form W-2 (1991). Such wages shall include
amounts within the meaning of Section 3401(a) of the Code
plus any other amounts paid to the Participant by the
Employer for which the Employer is required to furnish a
written statement under Section 6041(d) and 6051(a)(3) of
the Code, determined without regard to any rules that
limit the amount required to be reported based on the
nature or location of the employment or services
performed, exclusive of
(i) severance pay on a non payroll basis;
(ii) non-qualified deferred compensation payments;
and
(iii) any amounts paid or reimbursed by the Employer
for moving expenses which the Employer
reasonably believes at the time of such
payment to be deductible by the Employee under
Section 217 of
the Code.
(c) For purposes of Section 1.24 and Article 12, the amount
described in Subsection (b) increased by the amount of
any contributions made by the Employer under any salary
reduction or similar arrangement to a qualified deferred
compensation, pension or cafeteria plan, contributions to
a simplified employee pension plan described in Section
408(k) of the Code, contributions towards the purchase of
an annuity contract described in Section 403(b) of the
Code, compensation deferred under a deferred compensation
plan within the meaning of Section 457(b) of the Code and
Employee contribution (under governmental plans described
in Section 414(h)(2) of the Code which are picked up and
treated as Employer contributions. For purposes of
Section 1.24, the amount described above shall be for the
applicable period for making the determination of Highly
Compensated Employees.
(d) Notwithstanding the foregoing provisions, for any Plan
Year beginning after December 31, 1993 the amounts
described above in Subsections (a), (b) and (c) shall not
exceed $150,000 adjusted, if applicable, for cost-of-living
for Plan Years beginning after December 31, 1994, or such
other amount as determined under Section 401(a)(17) of the
Code and Regulations thereunder. A cost-of-living
adjustment
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shall occur if for any calendar year after 1994 the
cost-of-living adjustment effective as of the January 1 of
such calendar year made in accordance with Subsection
401(a)(17)(B) of the Code results in an increase equal to
or greater than $10,000. Such increase shall be rounded to
the next lowest multiple of $10,000 and shall apply to the
Plan Year which begins with or within such calendar year.
For purposes of determining the above dollar limitation,
the rules of Section 414(q)(6) of the Code, pertaining to
family members, shall apply, except that the term "family
member" shall include only the spouse of the Participant
and any lineal descendants of the Participant who have not
attained age 19 before the close of the year. Any
Compensation in excess of that amount shall be prorated
among family members in accordance with Section 401(a)(17)
of the Code.
Compensation for any prior Plan Year taken into account in
determining Average Compensation is subject to the
applicable annual Compensation limit in effect for that
prior Plan Year. For this purpose, for Plan Years ending
before January 1, 1994, the applicable limit is $150,000.
In the event of a short Plan Year, such dollar limitation
shall be divided by 12 and multiplied by the number of
months in the short Plan Year.
1.14 "CONTROLLED OR AFFILIATED SERVICE GROUP"
(a) CONTROLLED GROUP" - Any group of business entities under
common control, including but not limited to
proprietorships and partnerships, or a controlled group
of corporations within the meaning of Sections 414(b),
(c) and (o) of the Code. For purposes of Section 4.5,
the phrase "more than 50%" is substituted for the phrase
"at least 80%" each place it appears in Section
1563(a)(1) of the Code.
(b) "AFFILIATED SERVICE GROUP" - Any group of business entities
within the meaning of Section 414(m) of the Code.
1.15 "COVERED COMPENSATION"
For each Participant, the average of the Social Security Taxable
Wage Bases over the 35-year period ending with the calendar year in
which the Participant attains his Social Security Retirement Age
rounded to the nearest whole multiple of $3,000.
If a Participant ceases to be an Active Participant before attaining
his Social Security Retirement Age, the Social Security Taxable Wage
Base in effect on the date he ceased to be an Active Participant
shall be deemed to remain constant to the date he attains his Social
Security Retirement Age for purposes of determining his Covered
Compensation.
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1.16 "DEFINED BENEFIT PLAN"
An employee benefit plan defined in Section 3(35) of ERISA, which
meets the requirements for tax qualification under the Code.
"DEFINED CONTRIBUTION PLAN"
An employee benefit plan defined in Section 3(34) of ERISA, which
meets the requirements for tax qualification under the Code.
1.17 "DISABILITY"
Any physical or mental condition for which a Participant shall be
eligible to receive benefits under the disability insurance
provisions of the Social Security Act.
1.18 "EARLIEST COMMENCEMENT DATE"
The first day of the month coincident with or next following the day
before the Participant's death if the Participant was eligible for
Early Retirement and, if the Participant was not eligible for Early
Retirement, the first date the Participant would have been eligible
to commence his retirement income had he survived but did not
continue in or return to Service with the Employer.
1.19 "EFFECTIVE DATE"
January 1, 1983, the date as of which the Plan was established.
"SUPPLEMENTAL EFFECTIVE DATE"
January 1, 1994, the last date as of which the Plan was amended in
its entirety.
1.20 "ELECTION PERIOD"
The period commencing 90 days before the Annuity Starting Date and
ending on such Annuity Starting Date.
1.21 "EMPLOYEE"
Any person in the employ of the Employer.
Leased Employees within the meaning of Section 414(n) of the Code
shall be included as Employees unless (i) such individual is covered
by a money purchase pension plan providing (A) a nonintegrated
employer contribution rate of at least 10 percent of compensation,
as defined in Section 415(c)(3) of the Code, but including amounts
contributed by the employer pursuant to a salary reduction agreement
which are excludable from the Leased Employee's gross income under
Section 125, 402(e)(3), 402(h) or 403(b) of the Code; (B) immediate
participation; and (C) full and immediate vesting and (ii) Leased
Employees do not constitute more than 20% of the Employer's
Nonhighly Compensated Employee workforce.
8
<PAGE>
"ELIGIBLE EMPLOYEE"
An Employee of the Company for whom the Company is required to
contribute Federal Insurance Contributions Act taxes excluding
persons (a) who are Leased Employees or (b) under the jurisdiction
of a collective bargaining unit (i) having a pension or
profit-sharing plan to which the Company is required to contribute
under the terms of the collective bargaining agreement or (ii) for
whom retirement benefits were the subject of good faith bargaining.
Notwithstanding the above, Leased Employees shall be included in the
definition of Eligible Employee if the requirements of Section
414(n)(2) of the Code require such inclusion in order to meet the
plan qualification requirements enumerated in Section 414(n) and
then only if the coverage requirements of Section 410(b) of the Code
would otherwise not be met.
"LEASED EMPLOYEE"
Any person (other than an Employee of the recipient) who pursuant to
an agreement between the recipient and any other person ("leasing
organization") has performed services for the recipient (or for the
recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a
period of at least one year, and such services are of a type
historically performed by employees in the business field of the
recipient employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to
services performed for the recipient employer shall be treated as
provided by the recipient employer.
1.22 "EMPLOYER"
The Company and any other business entity in a Controlled or
Affiliated Service Group which includes the Company.
1.23 "ERISA"
The Employee Retirement Income Security Act of 1974, as it may from
time to time be amended or supplemented.
1.24 "HIGHLY COMPENSATED EMPLOYEE"
(a) An Employee who is a Highly Compensated Active Employee
or a Highly Compensated Former Employee.
(b) A Highly Compensated Active Employee is any Employee who
performs Service with the Employer during the
Determination Year and who (A) was at any time during the
Determination Year a 5% owner, as defined in Section
416(i)(1) of the Code; (B) received Compensation from the
Employer in excess of $75,000; (C) received Compensation
from the Employer in excess of $50,000 and was in the
Top-Paid Group, as defined in Section 414(q) of the Code,
of employees for such Determination Year; or (D) was at
any time an officer and
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<PAGE>
received Compensation greater than 50% of the maximum
dollar limitation under Section 415(b)(1)(A) of the Code.
The 415(b)(1)(A) limitation and the $75,000 and $50,000
thresholds set forth above shall be adjusted annually for
increases in the cost-of-living in accordance with Section
415(d) of the Code, effective as of January 1 of the
calendar year such increase is promulgated and applicable
to the Plan Year which begins with or within such calendar
year.
(c) A Highly Compensated Former Employee for a Determination
Year is any former Employee who separated from Service
(or was deemed to have separated) prior to such
Determination Year, performed no Service for the Employer
during the Determination Year and was a Highly Compensated
Active Employee for either the year in which such Employee
separated from Service or any Determination Year ending
on or after such Employee's 55th birthday.
(d) For purposes of this definition, the following shall be
applicable:
(i) The Determination Year is the applicable Plan
Year for which a determination is being made
and the Look-back Year is the 12-month period
immediately preceding such Plan Year.
(ii) If there are no officers as described above
in either the Determination Year, then the
highest paid officer of the Employer in each
such year shall be deemed a Highly Compensated
Employee with respect to such year.
(iii) The determination of Highly Compensated
Employees, including the determinations of the
number and identity of Employees in the
Top-Paid Group, and the number of Employees
treated as officers shall be governed by
Section 414(q) of the Code and Treasury
Regulation 1.414(q)-1T.
(iv) The Compensation and contributions under the
Plan of a Highly Compensated Employee who is a
5% owner or in the group consisting of the 10
Highly Compensated Employees paid the greatest
Compensation during any Determination Year
shall be determined by aggregating such
amounts with the Compensation and
contributions of each other Employee who is
the spouse, lineal ascendant or descendant or
spouse of a lineal ascendant or descendant of
such Highly Compensated Employee.
(e) For purposes of this Section, Compensation used to
determine whether an Employee is a Highly Compensated
Employee, shall be reasonably representative of
Compensation as defined in Subsection 1.09(c).
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<PAGE>
(f) Such determination of Highly Compensated Employees shall be
based on data as of a snapshot day, provided the day is
reasonably representative of the employer's workforce. If a
snapshot day is used for substantiating compliance with the
nondiscrimination requirements, the same snapshot day shall
be used for Highly Compensated Employee determination.
(i) If the snapshot day is other than the last
day of the Plan Year,the Employee's
Compensation must be projected for the Plan
Year under a reasonable method established by
the Company.
(ii) If an Employee is not employed on the snapshot
day but is taken into account in testing,
such Employee must be categorized as a Highly
Compensated Employee if such Employee
(A) terminated prior to the snapshot day
and was a Highly Compensated Employee
in the prior Plan Year;
(B) terminated prior the snapshot day and
(1) was a 5-percent owner, (2) has
Compensation for the Plan Year
greater than or equal to the
projected Compensation of any
Employee who is treated as a Highly
Compensated Employee on the snapshot
day (except for Employees who are
Highly Compensated Employees solely
because they are 5-percent owners or
officers), or (3) was an officer and
has Compensation greater than or
equal to the projected Compensation
of any other officer who is a Highly
Compensated Employee on the snapshot
day solely because that person is a
officer; or
(C) becomes employed subsequent to the
snapshot day and (1) is a 5-percent
owner, (2) has Compensation for the
Plan Year greater than or equal to
the projected Compensation of any
Employee who is treated as a Highly
Compensated Employee on the snapshot
day (except for Employees who are
Highly Compensated Employees solely
because they are 5-percent owners or
officers), or (3) is an officer and
has Compensation greater than or
equal to the projected Compensation
of any other officer who is a Highly
Compensated Employee on the snapshot
day solely because that person is a
officer.
"NONHIGHLY COMPENSATED EMPLOYEE"
An Employee who is not deemed to be a Highly Compensated Employee.
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1.25 "NORMAL FORM OF RETIREMENT INCOME"
A pension payable for life beginning as of the Participant's
Retirement Date or, if later, the income commencement date and
ceasing upon the Participant's death.
1.26 "PBGC"
The Pension Benefit Guaranty Corporation, as established under
Section 4002 of ERISA.
1.27 "PARTICIPANT"
All classifications as hereinafter defined:
(a) "ACTIVE PARTICIPANT" - An Eligible Employee who is
participating in the Plan in accordance with Section 2.1.
(b) "INACTIVE PARTICIPANT" - A person who is no longer an
Active Participant of the Plan (i) in accordance with
Section 2.2; (ii) because he is absent, but has not
resigned, retired, died or been discharged and has not
incurred a Break-in-Service in accordance with Subsection
1.34(b); or (iii) because his basis of employment no
longer meets the requirements set forth in Section 1.21
while he continues in the employ of the Employer.
(c) "RETIRED PARTICIPANT" - A former Eligible Employee whose
employment terminated, but who is eligible for or receiving
a benefit in accordance with Section 5.1.
(d) "VESTED PARTICIPANT" - A current or former Eligible
Employee other than a Retired Participant who has qualified
for a vested interest in his Accrued Benefit in accordance
with Article 5, but whose benefit has not been fully
distributed.
1.28 "PLAN"
The pension plan of the Company, as herein set forth and as from
time to time supplemented and amended.
1.29 "PLAN YEAR"
A period of 12 consecutive months commencing on the Effective Date
and each Anniversary Date thereafter.
1.30 "PROTECTED SPOUSE"
The spouse to whom the Participant had been legally married on the
earlier of the date of the Participant's death or the Participant's
Annuity Starting Date.
1.31 "QUALIFIED DOMESTIC RELATIONS ORDER"
A domestic relations order as defined in Section 9.9 in accordance
with Section 414(p) of the Code.
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1.32 "RETIREMENT"
The termination of employment of a Participant on his Normal, Early
or Deferred Retirement Date.
1.33 "RETIREMENT DATES"
(a) "NORMAL RETIREMENT DATE" - The date on which a Participant
attains age 65 or, if later, the fifth anniversary of the
date the Eligible Employee initially became a Participant.
The Participant's retirement income shall be computed and
payable as of the first day of the month coincident with or
next following his Normal Retirement Date.
(b) "EARLY RETIREMENT DATE" - The first day of any month
coincident with or following the date on which a
Participant attains age 55, provided he has completed 10
Years of Credited Service as of such date.
(c) "DEFERRED RETIREMENT DATE" - The first day of any month
subsequent to the Participant's Normal Retirement Date.
1.34 "SERVICE"
(a) All periods of employment with the Company, except as
provided in Subsection (c), and except for purposes of
determining benefits in accordance with Section 1.1,
Article 4 and Article 12, all additional periods of
employment with the Employer.
A period of employment begins as of the later of (i) or
(ii) below:
(i) (A) June 1, 1974, if the Participant was
in the employ of Capital Bank of
North Bay Village on such date;
(B) January 1, 1975, if the Participant
was in the employ of Capital Bank of
Kendale on such date;
(C) September 1, 1975, if the Participant
was in the employ of Capital Bank of
Miami, N.A. on such date;
(D) October 29, 1982, if the Participant
was in the employ of Capital Bank of
Broward County on such date; or
(E) January 1, 1985, if the Participant
was in the employ of Capital Trade
Services, Inc. on such date; or
The above limiting dates represent the
respective dates that such entities became
Employers.
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(ii) the date the Employee first completes an Hour
of Employment for the Employer and ends on the
earlier of the date the Employee resigns, is
discharged, retires or dies or, if the
Employee is absent for any other reason, on
the first anniversary of the first day of such
absence (with or without pay) from the
Employer. If an Employee is absent for any
reason and returns to the employ of the
Employer before incurring a Break-in-Service,
as provided in Subsection (b), he shall
receive credit for his period of absence up to
a maximum of 12 months. Service subsequent to
a Break-in-Service will be credited as a
separate period of employment.
(b) "BREAK-IN-SERVICE" - A period of 12-consecutive months
during which an Employee fails to accrue an Hour of
Employment with the Employer. Such period begins on the
earlier of the date the Employee resigns, is discharged,
retires or dies or, if the Employee is absent for any
other reason, on the first anniversary of the first day
of such absence (with or without pay) from the Employer.
If, commencing on or after January 1, 1985, an Employee
is absent by reason of (i) the pregnancy of the Employee,
(ii) the birth of a child of the Employee, (iii) the
placement of a child with the Employee in connection with
an adoption of such child by such Employee, or (iv)
caring for such child immediately following such birth or
placement, such Employee will not be treated as having
retired, resigned or been discharged and the period
between the first and second anniversary of the first day
of such absence shall not be considered a
Break-in-Service.
(c) Effective January 1, 1985, if an Employee, who did not
have a vested interest in his Accrued Benefit, incurs
five or more consecutive Breaks-in-Service and is then
reemployed by the Employer, he shall be deemed a new
Employee and shall not receive credit for his Service
before the date he incurred such Breaks-in-Service unless
his Service was equal to or greater than the period of
his absence. Notwithstanding the foregoing, any Service
disregarded as of December 31, 1984 in accordance with
the provisions of the Plan prior to its restatement shall
continue to be disregarded.
(d) "MONTH OF SERVICE" - A calendar month any part of which
is in a period of employment or credited absence.
(e) "YEAR OF SERVICE" - 12 Months of Service.
(f) "HOUR OF EMPLOYMENT"
(i) For an Employee paid on an hourly basis or for
whom hourly records of employment are required
to be maintained, each hour for which the
person is directly or indirectly paid or
entitled to payment for the performance of
duties or for the period of
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time when no duties are performed,
irrespective of whether the employment
relationship has terminated, such as vacation,
holiday or illness.
(ii) For an Employee paid on a non-hourly basis or
for whom hourly records of employment are not
required to be maintained, each week for which
the person is directly or indirectly paid or
entitled to payment shall be equal to 45 Hours
of Employment.
(iii) A person shall receive an Hour of Employment
for each hour for which back pay has been
awarded or agreed to irrespective of
mitigation of damages, provided that each such
hour shall be credited to the Applicable
Computation Period to which it pertains,
rather than the Applicable Computation Period
in which the award or agreement is made, and
further provided that no such award or
agreement shall have the effect of crediting
an Hour of Employment for any hour for which
the person previously received credit under
(i) or (ii) above.
(iv) Notwithstanding the foregoing, Hours of
Employment shall be computed and credited in
accordance with Department of Labor Regulation
2530.200(b)-2, Subparagraphs (b) and (c).
(g) Notwithstanding the foregoing, an Inactive Participant, as
defined in Subsection 1.27(b)(i) or (iii), shall not be
credited with any periods of employment while an Inactive
Participant for purposes of determining benefits in
accordance with Section 1.1, Article 4 and Article 12.
(h) Notwithstanding the above, Service for a Participant as
the result of a period of absence due to Disability shall
include imputed Service to the date such Participant
attains age 65. Determination of the amount of imputed
Service will be based on Service reasonably
representative of what such Participant would have
received during the period if the Participant had
continued to perform services.
(i) Notwithstanding the above, a Participant's Service as of
January 1, 1989 shall not be less than his period of
Service as of such date under the provisions of the Plan
prior to such date.
1.35 "SOCIAL SECURITY RETIREMENT AGE"
Age 65 in the case of a Participant attaining age 62 before January
1, 2000, age 66 for a Participant attaining age 62 after December
31, 1999 and before January 1, 2017 and age 67 for a Participant
attaining age 62 after December 31, 2016.
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1.36 "STRAIGHT LIFE ANNUITY"
An annuity payable in equal installments for the life of the
Participant that terminates upon the Participant's death.
1.37 "TRUST AGREEMENT"
The instrument executed by the Company and the Trustee fixing the
rights and liabilities of each with respect to holding and
administering the Trust Fund for the purposes of the Plan.
1.38 "TRUSTEE"
The Trustee or any successor Trustee, appointed by the Board of
Directors, acting in accordance with the terms of the Trust
Agreement.
1.39 "TRUST FUND"
All assets held by the Trustee in accordance with the terms of the
Trust Agreement.
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ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY FOR PARTICIPATION
(a) Each Eligible Employee on the Supplemental Effective Date
who was a Participant of the Plan shall continue as a
Participant as of the Supplemental Effective Date.
(b) Each other Eligible Employee shall become a Participant
as of the Supplemental Effective Date or the January or
July 1 next following the later of the date he completes
one Year of Service or attains age 21, provided he
completes 1,000 Hours of Employment with the Employer
during any Applicable Computation Period which began
the Supplemental Effective Date or such January or July 1.
If an Eligible Employee has not satisfied the 1,000 Hours
of Employment eligibility requirement when otherwise
eligible, he shall become a Participant as of the
Anniversary Date next following the Applicable
Computation Period during which he first completes 1,000
Hours of Employment with the Employer.
(c) If a former Participant is reemployed, he shall be
eligible to resume his participation as of the date of
his reemployment.
2.2 CHANGE IN EMPLOYMENT STATUS
(a) In the event a Participant ceases to be an Eligible
Employee as the result of becoming part of an excluded
class, only Compensation up to the date he ceased to be an
Eligible Employee shall be considered for purposes of
calculating Average Compensation. Such Employee shall cease
to be an Active Participant as of the date he ceased to be
an Eligible Employee.
In the event such Participant returns to an eligible class
and again becomes an Eligible Employee, he shall become an
Active Participant as of the date he again became an
Eligible Employee. Only Compensation from the date he again
became an Eligible Employee shall be considered for
purposes of calculating Average Compensation.
(b) If a person otherwise satisfied the eligibility
requirements of Section 2.1 and subsequently becomes an
Eligible Employee, he shall be eligible to become a
Participant as of the date he became an Eligible Employee
unless he is deemed a new Employee in accordance with
Section 1.34.
(c) In the event a collective bargaining agreement is entered
into between the Company and a representative for any
class of Employees in the employ of the Company
subsequent to the Supplemental Effective Date,
eligibility for participation in the Plan by such
Employees who are not Participants shall
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not be extended beyond the effective date of the collective
bargaining agreement unless the agreement extends
participation in the Plan to such Employees. The provisions
of Subsection (a) shall apply to those Employees who are
currently Participants.
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ARTICLE 3
CONTRIBUTIONS
3.1 COMPANY CONTRIBUTIONS
The Company intends to contribute such amounts as are actuarially
required to fund the benefits of the Plan. The annual valuation for
actuarially determining such amounts shall be based on the method of
funding adopted by the Committee and shall reflect adjustments for
experience realized from the investment of the Trust Fund,
mortality, turnover, future salary increments, forfeitures, and any
dividends resulting from insurance, if applicable. The Company does
not, however, guarantee either the making of the contributions or
the payment of the benefits under the Plan. The Company reserves the
right to reduce, suspend or discontinue its contributions under the
Plan for any reason at any time, notwithstanding any excise tax
which might result therefrom.
Notwithstanding the above, all Company contributions shall be
conditioned on their deductibility by the Company under Section 404
of the Code. If the deduction of any such contributions is
disallowed, such contributions shall be returned to the Company
within one year from the date of (i) such disallowance, or (ii) the
actuarial certification in the case of the de minimis rule as
provided for in Revenue Procedure 90-49.
3.2 PARTICIPANT CONTRIBUTIONS
No contributions shall be required of the Participants.
3.3 PAYMENT OF CONTRIBUTIONS
The Company shall deposit contributions with the Trustee for a
particular Plan Year at such times as the Company may decide.
3.4 MANAGEMENT OF TRUST FUND
The Trust Fund shall be held in trust by the Trustee appointed from
time to time (before or after termination of this Plan) by the Board
of Directors pursuant to the Trust Agreement.
3.5 PAYMENT OF EXPENSES
In addition to its contributions, the Company may elect to pay all
the administrative expenses of the Plan and all fees and retainers
of the Plan's Trustee, actuary, accountant, counsel, consultant,
administrator, or other specialist so long as the Plan or Trust Fund
remains in effect. If the Company does not pay all or part of such
expenses, the Trustee shall pay these expenses from the Trust Fund.
All expenses directly relating to the investments of the Trust Fund,
including taxes, brokerage commissions, and registration charges
must be paid from the Trust Fund.
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ARTICLE 4
AMOUNT OF RETIREMENT INCOME
4.1 UPON NORMAL RETIREMENT DATE
Subject to the maximum benefit limitation under Section 4.5, upon
Retirement at his Normal Retirement Date,
(a) an Active Participant shall be entitled to receive the
Actuarial Equivalent of the monthly Normal Form of
Retirement Income equal to 1/12 of the amount set forth
below. Such amounts shall be determined on the basis of the
Participant's Average Compensation, Covered Compensation
and Credited Service at his Normal Retirement Date.
1.2% of such Participant's Average Compensation not in
excess of his Covered Compensation plus 1.8% of the
Participant's Average Compensation in excess of his Covered
Compensation, multiplied by his Credited Service not to
exceed 25 years.
(b) an Inactive Participant shall be entitled to receive the
Actuarial Equivalent of his Accrued Benefit.
(c) In no event shall the Actuarial Equivalent of the Normal
Form of Retirement Income be less than (i) the Early
Retirement benefit determined as of any date on or after
the date the Participant first becomes eligible for Early
Retirement or less than (ii) the Actuarial Equivalent of
the Participant's Accrued Benefit. For purposes of
comparing such benefits in the same form, the greater
benefit is determined by converting the benefit payable
prior to Normal Retirement into the same form of annuity
benefit payable at Normal Retirement and comparing the
amount of such annuity payments.
In the case of a top-heavy plan the Normal Form of
Retirement Income shall not be smaller than the minimum
benefit to which the Participant is entitled under Article
12.
(d) If another plan as defined in Treasury Regulation Section
1.401(a)(4)-12 of the Employer either provides for
permitted disparity under Code Section 401(l) or imputes
disparity under Treasury Regulation Section 1.401(a)(4)-7,
(i) the total Annual Disparity Fraction for
Participants covered under all such plans
shall not exceed one; and
(ii) the Cumulative Disparity Fraction for such
Participants shall not exceed 35.
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For purposes of this Subsection the following definitions
shall be applicable:
DISPARITY
The amount by which excess contribution or benefit
percentage, whichever is applicable, exceeds the base
contribution or benefit percentage, whichever is
applicable.
ANNUAL DISPARITY FRACTION
A fraction, the numerator of which is the disparity
provided under a plan for a plan year and the denominator
of which is the maximum disparity provided under Treasury
Regulation Section 1.401(l)-2(b)(2) for defined
contribution plans or Treasury Regulation Section
1.401(l)-3(b)(2) for defined benefit plans.
For each year of service credited as of the end of the last
plan year beginning before January 1, 1989, a Participant's
Annual Disparity Fraction shall be one.
CUMULATIVE DISPARITY FRACTION
The sum of a Participants total Annual Disparity Fractions
for all Years of Service under all plans of the Employer.
4.2 UPON DEFERRED RETIREMENT DATE
Upon Retirement at his Deferred Retirement Date, an Active or
Inactive Participant shall be entitled to the greater of
(a) the amount determined under Subsection 4.1(a) based on
the Participant's Average Compensation, Covered
Compensation and Credited Service not to exceed 25 years,
or
(b) the Actuarial Equivalent of the amount determined under
Subsection 4.1(a) as of the Participant's Normal
Retirement Date.
Notwithstanding the above, if a Participant continues in the employ
of the Employer after benefits have commenced in accordance with
Subsection 8.3 (g) or (h), such Participant shall continue to accrue
a benefit for each Plan Year in accordance with Subsection 4.2(a).
These additional benefit accruals will be reduced each Plan Year by
the amount of the actuarial increase that would have been provided
with respect to the benefit in pay status had the payment of such
benefit been delayed to the date the additional benefit accruals
become payable.
4.3 UPON EARLY RETIREMENT OR DISABILITY
(a) Upon Retirement at his Early Retirement Date, a Participant
shall be entitled to receive the Actuarial Equivalent of
his Accrued Benefit as of such Retirement Date.
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<PAGE>
(b) Upon termination of employment as a result of his
Disability, a Participant shall receive the amount
determined in accordance with Section 5.2.
4.4 UPON OTHER TERMINATION OF EMPLOYMENT
Upon termination of employment for reasons other than Retirement, a
Vested Participant, at his Normal Retirement Date, shall be entitled
to receive his vested interest in
accordance with Section 5.3.
4.5 MAXIMUM BENEFIT LIMITATION
The following provisions shall be applicable and are intended to
conform to the requirements of Section 415 of the Code and shall be
construed accordingly:
(a) In no event shall the "maximum allowable annual benefit"
for any Participant exceed the amount determined hereunder.
Annual benefit shall mean a retirement income payable
annually attributable to Employer contributions. The Plan
Year shall be the limitation year for purposes of
determining the maximum allowable annual benefit.
(b) The maximum allowable annual benefit payable under all
Defined Benefit Plans, whether or not terminated, of an
Employer under which a Participant participates shall not
exceed the lesser of (i) or (ii) below, subject to
Subsections (c), (d) and (e):
(i) $90,000, or such other maximum permitted under
Section 415(b)(1)(A) of the Code, adjusted
annually for cost of living increases in
accordance with Section 415(d) of the Code,
(hereinafter called "dollar limitation"),
effective as of January 1 of the calendar year
each such increase is promulgated and
applicable to the limitation year which ends
with or within such calendar year.
(A) If such retirement income commences
before a Participant's Social
Security Retirement Age, the maximum
allowable annual benefit shall be the
Actuarial Equivalent of the dollar
limitation, as adjusted in accordance
with Subsection (d), payable at such
Participant's Social Security
Retirement Age.
(B) If such retirement income commences
after a Participant's Social Security
Retirement Age, the maximum allowable
annual benefit shall be the Actuarial
Equivalent of the dollar limitation,
as adjusted in accordance with
Subsection (d), payable at such
Participant's Social Security
Retirement Age.
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<PAGE>
(ii) 100% of a Participant's Compensation,
averaged over his three consecutive
highest-paid years of employment with the
Employer.
(c) If the form of benefit payment is other than a straight
life annuity or a qualified joint and survivor annuity (as
defined in Section 417(b) of the Code), the maximum
allowable benefit payable in the alternative form shall be
the Actuarial Equivalent of the maximum allowable annual
benefit in the form of a straight life annuity.
(d) For a Participant with less than 10 years of Plan
participation, the dollar limitation described in
Subsection (b)(i) shall be multiplied by the ratio of the
Participant's years of Plan participation to the number 10,
provided such dollar limitation is not reduced to an amount
less than one tenth of such limitation.
(e) For a Participant with less than 10 Years of Service, the
limitation described in Paragraph (b)(ii) and Subsection
(i) shall be multiplied by the ratio of the Participant's
Years of Service to the number 10.
In no event shall such reduction limit a Participant to a
maximum allowable annual benefit, payable under any form of
payment, of less than $1,000 for each Year of Service up to
a maximum of $10,000, provided such Participant never
participated in a Defined Contribution Plan maintained by
the Employer (other than the contributory portion of a
Defined Benefit Plan) and his total annual benefit payable
from all Defined Benefit Plans of the Employer does not
exceed $10,000.
(f) Subsection (d) shall be applied separately with respect to
each change in the benefit structure of the Plan to the
extent provided by the Secretary of the Treasury.
(g) If the aggregate benefits payable to the Participant under
all Defined Benefit Plans of the Employer, whether or not
terminated, exceed the maximum allowable annual benefit,
the benefit from each such plan which has not been
terminated shall be reduced proportionately, so that the
maximum allowable annual benefit is not exceeded.
(h) Participant contributions to Defined Benefit Plans will be
treated as contributions to Defined Contribution Plans. The
annual additions under all Defined Contribution Plans for
any Participant shall not exceed the lesser of (i) or (ii)
below:
(i) $30,000, or such other maximum permitted under
Section 415(c)(1)(A) of the Code, adjusted
annually for cost-of-living increases in
accordance with Section 415(d) of the Code,
effective as of January 1 of the calendar year
each such increase is
23
<PAGE>
promulgated and applicable to the limitation
year which ends with or within such calendar
year.
In the event of a short Plan Year, such dollar
limitation shall be divided by 12 and
multiplied by the number of months in the
short Plan Year.
(ii) 25% of the Participant's Compensation.
Annual addition shall mean the Employer contributions and
forfeitures allocated on behalf of a Participant for a Plan
Year, under any Defined Contribution Plan, plus the
Participant's non-deductible contributions. The annual
addition for any Plan Year beginning before January 1, 1987
shall not be recomputed to include all Employee
contributions.
The determination of the annual addition will be made as if
all Defined Contribution Plans of the Employer were one
plan. Annual additions will be applied to the applicable
Plan Year in accordance with Section 1.415-6(b) of the
Internal Revenue Income Tax Regulations.
(i) If a Participant is or has been a participant in one or
more Defined Contribution Plans of an Employer, whether or
not terminated, the projected annual benefit shall be
reduced so that a "combined benefit factor" in excess of
1.0 shall not result. The "combined benefit factor" is the
sum of (i) the defined benefit factor and (ii) the defined
contribution factor where
(i) the defined benefit factor is a fraction
(A) the numerator of which is the
Participant's projected annual
under all Defined Benefit Plans of
the Employer, and
(B) the denominator of which is the
lesser of
(1) 1.25 multiplied by the
maximum allowable annual
benefit under Subsection
(b)(i), as adjusted by
Subsections (c) and (e), or
(2) 1.4 multiplied by the
maximum allowable annual
benefit under Subsection
(b)(ii), as adjusted by
Subsections (c) and (e);
and
(ii) the defined contribution factor is a fraction
(A) the numerator of which is the sum of
the annual additions for such
Participant under all Defined
Contribution Plans of the Employer,
whether or not terminated, for all
such years
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<PAGE>
during which he was a participant in
such plans, and
(B) the denominator of which is the sum
of the lesser of the amounts
determined in (1) or (2) for the
current year and each prior year
during which the Participant was
employed by the Employer, regardless
of whether or not a plan was in
existence during those years:
(1) 1.25 multiplied by the
maximum dollar limitation
(as defined in Sections
415(c)(1)(A) and 415(d) of
the Code), or
(2) 1.4 multiplied by 25% of
such Participant's
Compensation.
For purposes of this Subsection only, if the limitation
year of the Defined Contribution Plans differs from the
limitation year of the Defined Benefit Plans, the
limitation year of the Defined Contribution Plans shall
govern and all benefits, annual additions and maximum
limitations shall be determined as of the end of such year.
(j) In the case of a plan which satisfied the requirements of
Section 415 of the Code for all Plan Years beginning
before January 1, 1987, the numerator of the defined
contribution factor, as defined in Subsection (i)(ii)(A),
shall be reduced, if necessary, by an amount (not
exceeding such numerator) as provided in regulations
prescribed by the Secretary of the Treasury or his
delegate, so that the combined benefit factor does not
exceed 1.0 for such Plan Year.
(k) If the annual Accrued Benefit of a Participant who was a
participant of the Plan as of the first day of Plan Year
beginning on or after January 1, 1987, exceeds the maximum
allowable annual benefit, then, for purposes of this
Section, the maximum allowable annual benefit with respect
to such Participant shall be equal to such annual Accrued
Benefit.
Such annual Accrued Benefit shall be determined as if such
Participant separated from Service as of the last day of
the Plan Year beginning before January 1, 1987 and shall
disregard (i) any change in the terms and conditions of the
Plan after May 5, 1986 and (ii) any cost of living
adjustment occurring after May 5, 1986.
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<PAGE>
ARTICLE 5
BENEFITS PAYABLE UPON TERMINATION OF EMPLOYMENT
5.1 UPON RETIREMENT
Upon eligibility for Retirement, a Participant shall have a 100%
vested interest in his Accrued Benefit.
A Participant shall have the right to retire on his Normal, Early,
Deferred or Disability Retirement Date.
5.2 SPECIAL RULES UPON DISABILITY RETIREMENT
(a) In accordance with Subsections 1.13(a) and 1.34(h), a
Participant shall continue to accrue benefits under the
Plan on the basis of imputed Compensation and Service to
the date such Participant attains age 65.
(b) As a condition of his continuing to receive imputed
Compensation and Service during Disability, the Committee
shall have the right to require a Participant to provide
such evidence as it considers appropriate for verifying his
continued eligibility for disability insurance benefit
payments under the Social Security Act.
(c) The Committee shall require evidence that the application
for such benefits has been approved by the Social Security
Administrator. The final determination shall be made by the
Committee on the basis of such evidence.
(d) Upon the cessation of the Participant's Disability prior
to his attainment of age 65, he shall not be entitled to
any benefits as the result of such Disability and he
shall only be entitled to such other benefits as may be
provided under the terms of the Plan for which he was
eligible as of his Disability Retirement Date based on
Service and Average Compensation to the date of such
cessation and benefits will be payable under Article 8 as
if he were a Vested Participant. If such Participant is
reemployed by the Company following the Cessation of his
Disability, he shall resume the classification of an
Active or Inactive Participant and benefits payable on
his subsequent termination of employment shall be
determined on the basis of the Average Compensation and
Service the Participant would have completed had he
remained in the employ of the Employer from the date of
such Disability to the period of his subsequent
reemployment.
(e) If a Participant eligible for Disability Retirement is also
a Vested Participant or is eligible for Early Retirement,
he may, in lieu of the Disability Retirement benefit
payable under this Section, elect to receive the benefit
applicable under Section 5.3 or the Early Retirement
Benefit.
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<PAGE>
(f) Notwithstanding any provisions of the Plan to the contrary,
if a Participant eligible for Disability has attained age
65, he shall have a 100% vested interest in his Accrued
Benefit and he shall receive his Normal Retirement Benefit.
Benefits will be payable under Article 8 as if he were a
Retired Participant.
5.3 UPON OTHER TERMINATION OF EMPLOYMENT
(a) Upon termination of employment by an Active or Inactive
Participant before qualifying for any other benefits under
the Plan and before his completion of three Years of
Service, there shall be no benefits payable under the Plan.
(b) Upon termination of employment by an Active or Inactive
Participant after his completion of three Years of Service,
he shall have a vested interest in his Accrued Benefit
equal to the percentage determined in accordance with the
following schedule on the basis of his Years of Service.
NUMBER OF YEARS PERCENTAGE OF ACCRUED
BENEFIT
Less than 3 full years 0%
3 full years 20%
4 full years 40%
5 full years 60%
6 full years 80%
7 or more full years 100%
(c) The portion of a Participant's Accrued Benefit which is not
vested shall be forfeited on the earlier of the date on
which the Participant receives a distribution of his vested
interest in accordance with Section 8.3 or the date on
which such Participant incurs five consecutive
Breaks-in-Service.
Notwithstanding the above, if the Actuarial Equivalent of a
Participant's vested Accrued Benefit is zero, he shall be
deemed to have received an immediate distribution as of the
date on which such Participant terminated employment and
such non vested Accrued Benefit shall be forfeited as of
such date.
5.4 REEMPLOYMENT AND REPAYMENT OF BENEFITS
(a) If a Participant is reemployed by an Employer prior to
incurring five consecutive Breaks-in-Service and his
vested interest had been wholly or partially distributed,
that portion of the Participant's Accrued Benefit
(including all optional forms of benefits and subsidies
relating to such benefits) which was subject to
forfeiture in accordance with Subsection 5.3(c) will be
restored provided the Participant repays the amount of
such distribution with interest, at the rate specified
under Section 411(c)(2)(C)(iii) of the Code or any
regulations relative thereto, as effective on the date of
such repayment, compounded annually from the date he
received such benefit to the date of such repayment.
Such
27
<PAGE>
amounts must be repaid to the Trust Fund in a lump sum
within five years from the date such Participant resumes
his employment with the Employer. If the Participant does
not make repayment within the specified time, the
provisions of Subsection 8.1(b) shall be applicable.
If a Participant who is deemed to receive a distribution
pursuant to Section 5.3(c) is reemployed by the Employer
prior to incurring five consecutive Breaks-in-Service, that
portion of such Participant's Accrued Benefit which was
subject to forfeiture in accordance with such Subsection
will be restored.
(b) Notwithstanding the above, no restoration of such
benefits shall be made and no repayment of such
distributions will be permitted in the case of
(i) any Participant who was fully vested,
(ii) any Participant who is reemployed after
incurring five consecutive Breaks-in-Service,
or
(iii) any Participant who incurred a one year
Break-in-Service prior to January 1, 1985 and
reemployment.
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ARTICLE 6
OPTIONAL FORMS OF RETIREMENT INCOME
6.1 OPTIONAL FORMS
(a) In lieu of the Normal Form of Retirement Income, a
Participant may, subject to Sections 6.2 and 6.3, elect to
receive his retirement income under one of the following
optional forms.
The retirement income payable under an optional form shall
be the Actuarial Equivalent of the Participant's Accrued
Benefit.
OPTION A JOINT AND 100% SURVIVOR provides a
reduced income during the
Participant's retired lifetime. Upon
his death, if the Participant's
Beneficiary survives him, the same
income will continue to the
Beneficiary until the Beneficiary's
death. This option is available only
if one individual is to be designated
as Beneficiary.
OPTION B JOINT AND 75% SURVIVOR provides a
reduced income during the
Participant's retired lifetime. Upon
his death, if the Participant's
Beneficiary survives him, 75% of the
Participant's income will continue to
the Beneficiary until the
Beneficiary's death. This option is
available only if one individual is
to be designated as Beneficiary.
OPTION C JOINT AND 50% SURVIVOR provides a
reduced income during the
Participant's retired lifetime. Upon
his death, if the Participant's
Beneficiary survives him, 50% of the
Participant's income will continue to
the Beneficiary until the
Beneficiary's death. This option is
available only if one individual is
to be designated as Beneficiary.
OPTION D 120 MONTHS CERTAIN AND CONTINUOUS
provides a reduced income during the
Participant's retired lifetime. Upon
his death during the first 120
months, the same income will continue
to the Participant's Beneficiary
until the expiration of such
120-month period.
OPTION E INSTALLMENTS provide an adjusted
income during a specified period.
Upon his death during the specified
period the value of the undistributed
benefits will be payable to the
Participant's Beneficiary.
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<PAGE>
(b) In no event shall any optional form be permitted which
would (i) result in the benefits being payable over a
period extending beyond the life of such Participant or
the lives of such Participant and his Beneficiary or life
expectancy of such Participant or the life expectancy of
such Participant and his Beneficiary; or (ii) distribute
any remaining balance, in the event of a Participant's
death after the commencement of his benefits, less
rapidly than the method of distribution in effect prior
to his death.
The above provisions are intended to conform to the
requirements of Section 401(a)(9) of the Code and shall be
construed accordingly.
6.2 RULES AND REGULATIONS
(a) No optional form other than Option C with the Participant's
spouse as his Beneficiary, may be elected by a Participant,
if the monthly benefit payable to the Participant or any
designated Beneficiary is less than $25.
(b) No consent to a distribution or election of an optional
form shall be valid until after written notification of the
provisions of Section 6.3 is received by the Participant.
The Committee shall provide such notice no less than 30
days nor more than 90 days before the Annuity Starting
Date.
Such notice shall contain a written explanation of
(i) the terms and conditions of the Automatic
Spouse Benefit in accordance with Section 6.3;
(ii) the Participant's right to make and the effect
of an election to waive the Automatic Spouse
Benefit;
(iii) the rights of the Protected Spouse;
(iv) the right to make, and the effect of, a
revocation of a previous election to waive the
Automatic Spouse Benefit; and
(v) a description of the optional forms available
under Section 6.1, including a lump sum
distribution.
The election of or subsequent change of any optional form
must be filed with the Committee no later than the date of
the Participant's Retirement or, if applicable and later,
the last day of a Participant's Election Period. The
consent of the Participant's Protected Spouse will be
required in the event of any election or change of election
made by a Participant, to the extent provided in Section
6.3.
In no event may the Participant or Beneficiary change any
optional form subsequent to the Annuity Starting Date.
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<PAGE>
(c) The Committee may promulgate any other specific rules and
requirements it deems advisable.
6.3 AUTOMATIC SPOUSE BENEFIT
Subject to Subsection 6.2(b), each Participant eligible for the
commencement of a retirement income shall be provided with written
notice that his retirement income shall be paid to him as if he
elected Option C with his Protected Spouse designated as his
Beneficiary on his Annuity Starting Date, unless the Participant
elects to have his retirement income paid to him in the Normal Form
of Retirement Income or any other optional form available in
accordance with Section 6.1. Such election, other than the election
of Options A and B with his Protected Spouse designated as his
Beneficiary, must include the irrevocable written acknowledgment and
consent of such spouse and be witnessed by a Plan representative or
notary public during the Election Period to the extent required by
law and the Committee. Any spousal consent will be limited to a
specific alternate Beneficiary and form of payment and any change in
such Beneficiary or form will require a new spousal consent. If the
Participant is not married, the automatic form of benefit payment
will be the Normal Form of Retirement Income.
The Participant shall have the right to elect, revoke or change any
election under this Section at any time during his Election Period
provided the Participant obtains any necessary written spousal
acknowledgment and consent. If it is established to the satisfaction
of the Committee that there is no spouse because the spouse cannot
be located or such other circumstances as may be promulgated by the
Internal Revenue Service or established by law, such consent will
not be required. The requirement for spousal consent to elect a form
of benefit payment other than Option A, B or C, with his Protected
Spouse as his Beneficiary, shall be effective with respect to
elections made after December 31, 1984 by Participants who received
pay for at least one Hour of Employment after August 22, 1984.
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ARTICLE 7
BENEFITS PAYABLE UPON DEATH
7.1 BEFORE INCOME COMMENCEMENT
Upon termination of employment as the result of death, a Participant
shall have a 100% vested interest in his Accrued Benefit.
(a) Upon the death of a married Participant before the
commencement of a retirement income, a lifetime income
shall be provided to his Protected Spouse commencing on the
Earliest Commencement Date in an amount equal to the
greater of
(i) the 50% Survivor Annuity, or
(ii) a lifetime income which is the Actuarial
Equivalent of the lump sum value of his vested
Accrued Benefit.
Alternatively, the Participant may elect to provide for the
payment of the lump sum value of his vested Accrued Benefit
to any other designated Beneficiary provided the
Participant's Protected Spouse consents to such election to
the extent permitted or required by law and the Committee.
Any waiver of death benefits to the Participant's Protected
Spouse with respect to the greater of the 50% Survivor
Annuity or 50% of the amount described in Paragraph (ii)
before the date a Participant terminates employment or the
first day of the Plan Year during which a Participant
attains age 35, will be null and void as of the earlier of
such date, but may be renewed by executing a new waiver
which meets the consent requirement above.
In the event of the Participant's death on or subsequent to
the indicated dates and prior to the submission of a new
waiver, the Protected Spouse shall be entitled to the
greater of the 50% Survivor Annuity or 50% of the amount
described in Paragraph (ii).
The designation of a Beneficiary other than the Protected
Spouse to receive the balance of benefits payable remains
valid after the earlier of the dates described above.
Any waiver prior to the first day of the Plan Year during
which such Participant attains age 35 which is made by a
Participant whose employment was terminated but who is
subsequently reemployed is not revoked by this rule at any
time but applies solely to benefits accrued before the date
of termination.
(b) Upon the death of an unmarried Participant before the
commencement of a retirement income, the lump sum value of
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the Participant's vested Accrued Benefit shall be paid to
his Beneficiary.
(c) Notwithstanding the foregoing provisions, if the
Participant has made an election to receive his retirement
income under either Option A or Option B in accordance with
Article 6 with his Protected Spouse as his Beneficiary, any
benefit payable upon the death of such Participant before
his Annuity Starting Date shall be based on such elected
form.
7.2 SUBSEQUENT TO INCOME COMMENCEMENT
Except as provided in Section 5.2, upon the death of a Vested or
Retired Participant for whom no optional form had been in effect in
accordance with Article 6, there shall be no benefits payable under
the Plan. If an optional form had been in effect, the provisions of
such optional form shall apply. A married Participant is assumed to
have elected Option C with his Protected Spouse as Beneficiary
unless he has elected otherwise.
7.3 DEFINITIONS AND RULES GOVERNING DEATH BENEFITS
(a) "50% Survivor Annuity" means a monthly lifetime income
payable to the Participant's Protected Spouse equal to
50% of the monthly retirement income the Participant would
have received had he elected to receive the Actuarial
Equivalent of his vested Accrued Benefit as of his date
of death commencing on the later of his date of death or
the Earliest Commencement Date under Option C with such
spouse as the specified survivor.
(b) Each Participant, upon becoming eligible for
participation in the Plan, may designate a primary
Beneficiary to receive the benefits payable in the event of
his death, or, absent the applicability of a Survivor
Annuity, may designate a secondary Beneficiary to receive
any benefits payable in the event of the death of the
primary Beneficiary. If a Participant designates a primary
Beneficiary but not a secondary Beneficiary or if any such
secondary Beneficiary dies, the Beneficiary last in receipt
of or entitled to any benefit shall have the right to
designate a successor Beneficiary to receive any benefits
payable in the event of his death. In the absence of any
such designation, the Actuarial Equivalent of benefits
payable upon the death of the last living Beneficiary shall
be paid in a lump sum to his estate. A Participant may
change his Beneficiary at any time. All Beneficiary
designations and changes shall be made on an appropriate
form and filed with the Committee. If the primary
Beneficiary designated by the Participant is anyone other
than the Participant's Protected Spouse, such designation
must include the written acknowledgment and irrevocable
consent of such spouse and be witnessed by a Plan
representative or a notary public, to the extent required
by law and the Committee. Such consent will be limited to a
specific alternate Beneficiary and any change
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in such alternate Beneficiary will require a new spousal
consent.
(c) The Committee shall provide notice of the availability of
any election which results in a waiver of (i) the 50%
Survivor Annuity or if applicable, (ii) 50% of the amount
described in Subsection 7.1(a)(ii) with the Protected
Spouse as Beneficiary within the Applicable Period. Such
notice shall be in such terms and such manner as would be
comparable to the notice described in Subsection 6.2(b).
For purposes of this Subsection, the term Applicable Period
means, with respect to a Participant, whichever of the
following periods ends last:
(i) The period beginning with the first day of the
Plan Year in which the Participant attains age
32 and ending with the close of the Plan Year
preceding the Plan Year in which the
the Participant attains age 35.
(ii) A reasonable period ending after the
individual
becomes a Participant.
(iii) A reasonable period ending after this Section
first applies to the Participant.
(iv) A reasonable period ending after separation
from service in the case of a Participant
who separates before attaining age 35.
A reasonable period ending after the events described in
Paragraphs (ii), (iii) and (iv) is the end of the two-year
period beginning one year prior to the date the applicable
event occurs, and ending one year after that date. In the
case of a Participant who separates from service before the
Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year
prior to separation and ending one year after separation.
If such Participant thereafter returns to employment with
the Company, the Applicable Period for such Participant
shall be redetermined.
(d) The requirements for spousal consent shall be effective
with respect to (i) Participants who received pay for at
least one Hour of Employment with an Employer after August
22, 1984 and (ii) Participants who elect to have such
requirement apply to them.
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ARTICLE 8
REGULATIONS GOVERNING PAYMENT OF BENEFITS
8.1 DUPLICATION OF BENEFITS
Notwithstanding any provisions of the Plan to the contrary,
(a) If a Participant is entitled to any retirement income or
other benefits attributable to Employer contributions
from any other qualified retirement plan or annuity and if
such other plan or annuity is sponsored or provided by
any trade or other type organization or established by
reason of any collective bargaining agreement covering
such Participant, the benefits to which such Participant
may be entitled under this Plan shall be reduced by an
amount equal to such other retirement income or benefits,
to the extent such benefits are attributable to
concurrent periods of employment.
(b) In the determination of any benefit to which a
Participant or Beneficiary will be entitled under the Plan,
adjustments shall be made to reflect any amounts
previously distributed under the Plan unless such amount
had been repaid in accordance with Section 5.4 and to
reflect any amounts required to be paid to the
Participant's Protected Spouse or former spouse under any
law or Qualified Domestic Relations Order.
8.2 CLAIM PROCEDURE FOR BENEFITS
(a) Any request for specific information with respect to
benefits under the Plan must be made to the Committee in
writing by a Participant or his Beneficiary. Oral
communications will not be recognized as a formal request
or claim for benefits.
(b) The Committee shall provide adequate notice in writing to
any Participant or Beneficiary whose claim for benefits
under the Plan has been denied (i) setting forth the
specific reasons for such denial, specific references to
pertinent Plan provisions, a description of any material
and information which had been requested but not received
by the Committee, and (ii) advising such Participant or
Beneficiary that any appeal of such adverse determination
must be in writing to the Committee, within such period
of time designated by the Committee but, until changed,
not more than 60 days after receipt of such notification,
and must include a full description of the pertinent
issues and basis of claim.
(c) If the Participant or Beneficiary fails to appeal such
action to the Committee in writing within the prescribed
period of time, the Committee's adverse determination shall
be final.
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<PAGE>
(d) If an appeal is filed with the Committee, the Participant
or Beneficiary shall submit such issues he feels are
pertinent and the Committee shall re-examine all facts,
make a final determination as to whether the denial of
benefits is justified under the circumstances, and advise
the Participant or Beneficiary in writing of its decision
and the specific reasons on which such decision was
based, within 60 days of receipt of such written request,
unless special circumstances require a reasonable
extension of such 60-day period.
8.3 COMMENCEMENT OF BENEFITS
The following provisions shall be applicable for determining when
distribution of benefits shall be made. These provisions are
intended to conform to the requirements of Section 401(a)(9) of the
Code, including the minimum distribution incidental benefit proposed
Treasury Regulation 1.401(a)(9)-2, and shall be construed
accordingly.
(a) Unless otherwise provided in Subsection (e), in the event
of termination of employment, if the Actuarial Equivalent
of any benefit totals $3,500 or less, such benefit will
commence as soon as administratively feasible following
such termination.
(b) Unless otherwise provided in this Section, in the event of
termination of employment, if the Actuarial Equivalent of
any benefit totals more than $3,500, such benefit will
commence as soon as administratively feasible following
such termination, provided that if the Participant has not
attained his Normal Retirement Date, the Participant
consents to such distribution within his Election Period.
If the distribution is payable to the Participant's
Protected Spouse, payment of benefits will commence as soon
as administratively feasible following the Participant's
death, but not later than the Participant's Earliest
Commencement Date, provided that if such distribution is
prior to the date the Participant would have attained his
Normal Retirement Date the written acknowledgment and
irrevocable consent of such spouse is obtained within 90
days of the Annuity Starting Date.
Notwithstanding the above, no consent to a distribution
prior to the date the Participant attained or would have
attained his Normal Retirement Date shall be valid until
after written notification of the right to defer is
received by the Participant or Protected Spouse, if
applicable. The Committee shall provide such written
notification of the right to defer any benefit payable no
less than 30 days nor more than 90 days before the Annuity
Starting Date.
(c) If a Retired Participant does not consent to the
distribution at the time specified above and fails to elect
deferral in accordance with Subsection (f), benefits will
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<PAGE>
commence as of the 60th day following the last day of the
Plan Year during which the Participant's Normal Retirement
Date occurs.
If the Participant's Protected Spouse as Beneficiary does
not consent to the distribution at the time specified above
and fails to elect deferral in accordance with Subsection
(i), benefits will commence as of the 60th day following
the last day of the Plan Year during which the
Participant's Normal Retirement Date would have occurred.
(d) If such termination of employment is a result of
(i) an event other than Retirement, Disability or
death and the Actuarial Equivalent of a
Participant's Accrued Benefit is more than
$3,500, payment will be deferred until his
Normal Retirement Date, at which time the
Participant may elect to commence his
by filing an application with the Committee.
(ii) Disability payment will be deferred until the
Participant attains age 65.
Notwithstanding the foregoing provision, a Vested
Participant who terminated his employment and who had
completed 10 Years of Credited Service may elect to
commence payment of the Actuarial Equivalent of his Accrued
Benefit at any time on or after attaining age 55 by filing
his application with the Committee.
All applications for commencement of benefits must be made
on an appropriate form filed with the Committee no earlier
than 90 days before the date the Participant specifies for
the commencement of his benefits. Payment of a
Participant's benefits shall commence not later than 60
days following the last day of the Plan Year during which
payments are requested to commence in accordance with the
application filed by the Participant.
The Committee shall attempt to communicate with a Vested
Participant at least once in each year by certified mail,
with return receipt requested, directed to the
Participant's last known address, commencing with the year
in which the Participant reaches his Normal Retirement Date
and ending with the year in which he files application with
the Committee or the third year following the Participant's
Normal Retirement Date, whichever first occurs. At the
expiration of the six-month period following the last such
notice, the provisions of Section 8.6 shall apply.
(e) If the amount of any payment under this Section would
adversely affect the Trust Fund by forcing the premature
liquidation of assets, such payment may be delayed until
the timely and orderly liquidation of investments can be
accomplished, but in no event later than the 60th day
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<PAGE>
following the last day of the Plan Year during which occurs
the latest of
(i) the date a Participant attains the earlier of
his Normal Retirement Date or age 65;
(ii) the tenth anniversary of the year during which
the Participant commenced participation in the
Plan; or
(iii) the date the Participant terminates his
employment.
If the amount of any payment under this Section would
adversely affect the Trust Fund by permitting former
Participants to enter into direct competition with the
Company, such payment will be delayed until the 60th day
after the end of the Plan Year during which the
Participant's Normal Retirement Date occurs.
If the amount of any payment under this Section cannot be
ascertained by the applicable commencement date, payment
shall be made no later than 60 days after the earliest date
on which the amount of such payment can be ascertained.
(f) A Participant who terminates employment may elect that
payment of the Actuarial Equivalent of his retirement
benefits commence at a date later than specified above by
submitting a signed, written statement describing the
benefit and the date on which the payment of such benefit
shall commence, provided such date is not later than the
April 1 following the calendar year during which the
Participant attains or would have attained age 70-1/2 or
such later date as may be promulgated by the Internal
Revenue Service.
(g) An Active or Inactive Participant may irrevocably elect to
commence the Actuarial Equivalent of his monthly Normal
Form of Retirement Income as of the first day of any month
coincident with or subsequent to his attainment of age
70-1/2 by submitting written notice to the Committee of
such election. Any such commencement shall be subject to
the provisions of Section 4.2.
(h) Notwithstanding the above, effective for Plan Years
beginning after December 31, 1984 but before January 1,
1989, distribution of the Actuarial Equivalent of
retirement benefits to a 5% owner, within the meaning of
Section 416(i)(1)(B)(i) of the Code, must commence not
later than the April 1 following the calendar year in
which the Participant attains age 70-1/2, or such later
date as promulgated by the Internal Revenue Service,
whether or not the Participant terminates employment in
that year and whether or not the Participant applies for
benefit payment.
Effective for Plan Years beginning after December 31, 1988,
distribution of the Actuarial Equivalent of retirement
benefits must commence not later than the April 1 following
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<PAGE>
the calendar year in which the Participant attains age
70-1/2, or such later date as promulgated by the Internal
Revenue Service, whether or not the Participant terminates
employment in that year and whether or not the Participant
applies for benefit payment.
The foregoing shall not apply to a Participant who attains
age 70-1/2 before January 1, 1988 unless such Participant
was or becomes a 5% owner, within the meaning of Section
416(i)(1)(B)(i) of the Code, at any time during the Plan
Year ending with or within the calendar year in which he
attains age 66-1/2 or any subsequent Plan Year, or who had
made a valid election under Section 242(b) of the Tax
Equity and Fiscal Responsibility Act of 1982 (TEFRA) to
commence his benefits at a later date.
(i) If the designated Beneficiary is,
(i) the Participant's spouse, such spouse may
elect that benefit payments commence at a date
later than specified in Subsection (b) by
submitting a signed written statement
describing the benefit and the date on which
the payment of such benefit shall commence,
provided such date is not later than the
latest of (A) December 31 of the calendar year
in which the Participant dies or (B) December
31 of the calendar year during which the
Participant would have attained age 70-1/2 or
(C) such later date as may be promulgated by
the Internal Revenue Service.
If such spouse dies prior to the commencement
of benefits, and if the distribution of any
death benefit payable to the spouse's
Beneficiary is made in a form that may extend
beyond the December 31 of the calendar year
during which the fifth anniversary of such
spouse's death occurs, such distribution must
commence no later than the December 31 of the
calendar year immediately following the date
of such spouse's death or such later date as
may be promulgated by the Internal Revenue
Service.
(ii) other than the Participant's spouse, and the
death benefit payable is made in a form that
may extend beyond the December 31 of the
calendar year during which the fifth
anniversary of such Participant's death
occurs, such distribution must commence no
later than the December 31 of the calendar
year immediately following the date of such
Participant's death or such later date as may
be promulgated by the Internal Revenue
Service.
8.4 METHOD AND FORM OF PAYMENT OF BENEFITS
The following provisions shall be applicable for determining the
method and form of payment of all benefits. These provisions are
intended to conform to the requirements of Section 401(a)(9) of
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<PAGE>
the Code, including the minimum distribution incidental benefit
proposed Treasury Regulation 1.401(a(9)-2, and shall be construed
accordingly.
(a) Subject to Article 6 and Section 8.3, if the Actuarial
Equivalent of any benefit payable to a Participant or
Beneficiary totals $3,500 or less, such benefit will be
distributed in a lump sum.
(b) Subject to Article 6 and Section 8.3, if the Actuarial
Equivalent of any benefit payable to a Participant totals
more than $3,500, such benefit will be used to provide a
retirement income directly from the Trust Fund.
(c) Subject to Section 8.3 and before the Participant's Annuity
Starting Date, any benefit payable to a Participant's
Beneficiary will be distributed in accordance with the
provisions of Article 7, unless the Beneficiary elects to
have such benefits distributed in a lump sum.
The determination of the lump sum value shall be on the
basis of the Beneficiary's actual age in years and months
as of the first day of the month following the
Participant's Earliest Commencement Date or, if later, the
Anniversary Date preceding or coincident with the date
selected for the payment of the benefit.
(d) The present value of a Participant's vested Accrued Benefit
will be treated as greater than $3,500 at all times after
the commencement of benefits that were subject to the
spousal consent requirements under Sections 6.2, 6.3 and
8.3.
The determination of the lump sum value shall be on the
basis of the Participant's actual age in years and months
as of the first day of the month following the
Participant's termination of employment or, if later, the
Anniversary Date preceding or coincident with the date
selected for the payment of the benefit.
(e) Notwithstanding the provisions of Subsection (b), in lieu
of a retirement income payable directly from the Trust Fund
the Committee in its sole discretion, may purchase an
immediate Annuity.
Any immediate annuity contract purchased and distributed to
a Participant shall be nontransferable and shall comply
with the requirements of this Plan.
(f) If a Participant's benefits are required to commence in
accordance with Subsection 8.3(h), such Participant shall
make an irrevocable election as to the optional form of
payment. In the event that such Participant has not
attained his Normal Retirement Date, the commencement of
that portion of any benefit attributable to additional
accruals shall be a separate Annuity Starting Date. Such
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<PAGE>
Participant shall make an irrevocable election as to the
optional form of payment with respect to such additional
accrual. All such benefits shall be paid directly from
the Trust Fund. Subject to Section 6.3, the options
available will include options available to retirees in
accordance with Section 6.1. Upon subsequent termination
of employment for any reason, the optional form or forms
previously elected will remain in effect.
(g) The distribution of a lump sum payment to the Participant
or his Beneficiary will constitute the complete discharge
of all obligations of the Plan.
8.5 DISPOSITION OF UNCLAIMED BENEFITS
In the event that any check or final notice of payment of benefits
under the Plan remains outstanding at the expiration of six months
from the date of mailing of such check or notice to the last known
address of the payee, the Committee shall notify the Trustee to stop
payment on all outstanding checks and to suspend the issuance of
further checks or notice, if any, to such payee. If, during the
three-year period (or such other period as specified in the Trust
Agreement) from the date of mailing of the first such check or of
notice that a benefit is due under the Plan, the Committee cannot
establish contact with the payee by taking such action as it deems
appropriate and the payee does not make contact with the Committee,
any benefits to which such payee is entitled shall be forfeited. Any
benefit so forfeited shall be restored if a claim is made for the
unpaid benefit at any subsequent date and the Plan has not been
terminated as of such date. Contributions required to be made in
accordance with Section 3.1 shall reflect such forfeitures and
restoration in the same manner as expense gains and losses are
reflected in the funding method used by the Plan.
8.6 NON-ASSIGNABILITY
No benefit or interest under the Plan shall be subject in any manner
either voluntarily or involuntarily to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge and any
such action shall be void for all purposes of the Plan. No benefit
shall in any manner be subject to the debts, contracts, liabilities,
engagements or torts of any person, nor shall it be subject to
attachments or other legal process for or against any person, except
with respect to a Qualified Domestic Relations Order or domestic
relations order entered before January 1, 1985 and in such other
instances and to such extent as may be permitted by law.
8.7 SUBSTITUTE PAYEE
If a Participant or Beneficiary entitled to receive benefits
hereunder is in his minority, or is, in the judgment of the
Committee, legally, physically, or mentally incapable of personally
receiving and receipting for any distribution, the Committee may
instruct the Trustee to make distributions to his
41
<PAGE>
legally appointed guardian, or to such other person or institution
as, in the judgment of the Committee, is then maintaining or has
custody of the payee.
8.8 SATISFACTION OF LIABILITY
After all benefits have been distributed in full to a Participant or
to his Beneficiary, all liability to such Participant or to his
Beneficiary shall cease.
8.9 LIMIT FOR 25 HIGHEST PAID EMPLOYEES
(a) For Plan Years beginning before January 1, 1994, Employer
contributions on behalf of any of the 25 highest paid
Employees at the time the Plan is established and whose
anticipated annual benefit exceeds $1,500 will be
restricted as provided in paragraph (b) upon the occurrence
of the following conditions:
(i) The Plan is terminated within 10 years after
its establishment,
(ii) The benefits of such highest paid Employee
become payable within 10 years after the
establishment of the Plan, or
(iii) If Section 412 of the Code (without regard to
Section 412(h)(2)) does not apply to this
Plan, the benefits of such Employee become
payable after the Plan has been in effect for
10 years, and the full current costs of the
Plan for the first 10 years have not been
funded.
(b) Employer contributions which may be used for the benefit of
an Employee described in paragraph (a) shall not exceed the
greater of twenty thousand dollars ($20,000), or twenty
percent (20%) of the first fifty thousand dollars ($50,000)
of the Employee's compensation multiplied by the number of
years between the date of the establishment of the Plan
and:
(i) If (a)(i) applies, the date of the termination
of the Plan,
(ii) If (a)(ii) applies, the date the benefits
become payable, or
(iii) If (a)(iii) applies, the date of the failure
to meet the full current costs.
(c) If the Plan is amended so as to increase the benefit
actually payable in the event of the subsequent
termination of the Plan, then the provisions of the above
paragraphs shall be applied to the Plan as so changed as
if it were a new Plan established on the date of the
change. The original group of 25 Employees (as described
in (a) above) will continue to have the limitations in
(b) apply as if the
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Plan had not been changed. The restrictions relating to the
change of Plan should apply to benefits or funds for each
of the 25 highest paid Employees on the effective date of
the change except that such restrictions need not apply
with respect to any Employee in this group for whom the
normal annual pension or annuity provided by Employer
contributions prior to that date and during the ensuing 10
years, based on his rate of Compensation on that date,
could not exceed $1,500.
The Employer contributions which may be used for the
benefit of the new group of 25 Employees will be limited to
the greater of:
(i) The Employer contributions (or funds
attributable thereto) which would have been
applied to provide the benefits for the
Employee if the previous Plan had been
continued without change;
(ii) $20,000; or
(iii) The sum of (A) the Employer contributions (or
funds attributable thereto) which would have
been applied to provide benefits for the
Employee under the previous Plan if it had
been terminated the day before the effective
date of change, and (B) an amount computed by
multiplying the number of years for which the
current costs of the Plan after that date are
met by (1) 20% of his annual Compensation, or
(2) $10,000, whichever is smaller.
(d) Notwithstanding the above limitations, the following
limitations will apply if they would result in a greater
amount of employer contributions to be used for the benefit
of the restricted Employee:
(i) In the case of a substantial owner (as defined
in Section 4022(b)(5) of ERISA), a dollar
amount which equals the present value of the
benefit guaranteed for such Employee under
Section 4022 of ERISA, or if the Plan has not
terminated, the present value of the benefit
that would be guaranteed if the Plan
terminated on the date the benefit commences,
determined in accordance with regulations of
the PBGC; and
(ii) In the case of the other restricted Employees,
a dollar amount which equals the present value
of the maximum benefit described in Section
4022(b)(3)(B) of ERISA (determined on the
earlier of the date the Plan terminates or the
date benefits commence, and determined in
accordance with regulations of PBGC) without
regard to any other limitations in Section
4022 of ERISA.
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(e) Notwithstanding the otherwise applicable restrictions on
distributions of benefits incident to early Plan
termination, a Participant's otherwise restricted benefit
may be distributed in full upon depositing with an
acceptable depository property having a fair market value
equal to 125% of the amount which would be repayable had
the Plan terminated on the date of the lump sum
distribution. If the market value of the property held
by the depository falls below 110% of the amount which
would be repayable if the Plan were then to terminate,
additional property necessary to bring the value of the
property held by the depository up to 125% of such amount
will be deposited.
(f) RESTRICTIONS ON BENEFITS - EFFECTIVE FOR PLAN YEARS
BEGINNING ON AND AFTER JANUARY 1, 1994
In the event of termination of the Plan, the benefit of any
Restricted Employee shall be limited to a benefit that is
nondiscriminatory under Section 401(a)(4) of the Code.
(g) RESTRICTIONS ON DISTRIBUTIONS - EFFECTIVE FOR PLAN YEARS
BEGINNING ON AND AFTER JANUARY 1, 1994
(i) Except as provided below, annual payments to
Restricted Employees shall be limited to an
amount equal to the payments that would be
made on behalf of such Restricted Employee
under a single life annuity that is the
Actuarial Equivalent of the sum of such
Restricted Employee's Accrued Benefit and any
other benefits under the Plan as described in
Paragraph (iii)(B).
(ii) The restrictions of Paragraph (i) do not
apply, however, if
(A) after payment of the benefits
described in Paragraph (iii)(B) to a
Restricted Employee, the value of
Plan assets equals or exceeds 110% of
the value of current liabilities, as
defined in Section 412(l)(7) of the
Code, or
(B) the value of the benefits described
in Paragraph (iii)(B) for Restricted
Employees is less than one percent of
the value of current liabilities.
(iii) An Employee's otherwise restricted benefit may
be distributed in full to the affected
Employee if prior to receipt of the Restricted
Amount, the Employee enters into a written
agreement with the Committee to secure
repayment to the Plan of the Restricted
Amount. The Employee may secure repayment of
the Restricted Amount upon distribution by:
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(A) entering into an agreement for
promptly depositing in escrow with an
acceptable depository property having
a fair market value equal to at least
125 percent of the Restricted Amount,
(B) providing a bank letter of credit in
an amount equal to at least 100
percent of the Restricted Amount, or
(C) posting a bond equal to at least 100%
of the Restricted Amount. If the
Employee elects to post bond, the
bond will be furnished by an
insurance company, bonding company or
other surety for federal bonds.
The escrow arrangement may provide that an
Employee may withdraw amounts in excess of 125
percent of the Restricted Amount. If the
market value of the property in an escrow
account falls below 110 percent of the
remaining Restricted Amount, the Employee must
deposit additional property to bring the value
of the property held by the depository up to
125 percent of the Restricted Amount. The
escrow arrangement may provide that the
Employee may have the right to receive any
income from the property placed in escrow,
subject to the Employee's obligation to
deposit additional property, as set forth in
the preceding sentence.
A surety or bank may release any liability on
a bond or letter of credit in excess of 100
percent of the Restricted Amount.
If the Committee certifies to the depository,
surety or bank that the Employee (or the
Employee's estate) is no longer obligated to
repay any Restricted Amount, a depository may
redeliver to the Employee any property held
under an escrow agreement, and a surety or
bank may release any liability on an
Employee's bond or letter of credit.
(iv) For purposes of this Section,
(A) Restricted Employees shall include
all Highly Compensated Active
Employees and Highly Compensated
Former Employees. The total number of
such Restricted Employees shall be
limited to those 25 Highly
Compensated Active Employees and
Highly Former Compensated Employees
with the greatest Compensation.
(B) benefit shall mean any periodic
income and any death benefits payable
not provided for by insurance on the
Employee's life.
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(C) Restricted Amount shall mean the
excess of the amounts distributed to
the Employee (accumulated with
reasonable interest) over the amounts
that could have been distributed to
the Employee under the Straight Life
Annuity (accumulated with reasonable
interest).
The above provisions of this Section are intended to
conform the Plan to the requirements of Treasury Regulation
1.401(a)(4)-5(b) and shall be construed accordingly.
8.10 DIRECT ROLLOVER TO ELIGIBLE RETIREMENT PLANS
(a) Notwithstanding any provisions of the Plan to the contrary
that would otherwise limit a Distributee's election under
this Section, a Distributee may elect, at the time and in
the manner prescribed by the Committee, to have any portion
of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Distributee in a
Direct Rollover.
(b) Definitions
(i) Eligible Rollover Distribution
An Eligible Rollover Distribution is any
distribution of all or any portion of the
balance to the credit of the Distributee,
except that an Eligible Rollover Distribution
does not include: (A) any distribution that is
one of a series of substantially equal
periodic payments (not less frequently than
annually) made for the life (or life
expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the
Distributee and the Distributee's designated
Beneficiary, or for a specified period of ten
years of more; (B) any distribution to the
extent such distribution is required under
Section 401(a)(9) of the Code; and (C) the
portion of any distribution that is not
includable in gross income (determined without
regard to the exclusion for net unrealized
appreciation with respect to Employer
securities).
(ii) Eligible Retirement Plan
An Eligible Retirement Plan is an individual
retirement account described in Section 408(a)
of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of
the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the
Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an
Eligible Retirement Plan is an individual
retirement account or individual retirement
annuity.
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(iii) Distributee
A Distributee includes an Employee or former
Employee. In addition, the Employee's or
former Employee's surviving spouse and the
Employee's or former Employee's spouse or
former spouse who is the alternate payee under
a Qualified Domestic Relations Order, are
Distributees with regard to the interest of
the spouse or former spouse.
(iv) Direct Rollover
A Direct Rollover is a payment by the Plan to
the Eligible Retirement Plan specified by the
Distributee.
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ARTICLE 9
ADMINISTRATION OF THE PLAN
9.1 ASSIGNMENT OF ADMINISTRATIVE AUTHORITY
The Board of Directors shall appoint a Committee to administer the
Plan and may appoint an investment manager. The Committee may
consist of directors, officers, Employees or any other individuals,
who, upon acceptance of such appointment, shall serve at the
pleasure of the Board of Directors. Any member may resign by
delivering his written resignation to the Board of Directors and to
the Committee. Vacancies in the Committee arising from resignation,
death or removal shall be filled by the Board of Directors.
9.2 ORGANIZATION AND OPERATION OF THE COMMITTEE
(a) The Committee shall act, in carrying out its duties and
responsibilities, in the interest of the Participants and
Beneficiaries and with the care, skill, prudence, and
diligence under the circumstances then prevailing that a
prudent man, acting in a like capacity and familiar with
such matters, would use in the conduct of an enterprise of
like character and aims.
(b) The Committee shall act by a majority of its members
unless unanimous consent is required by the Plan or by
unanimous approval of its members if there are two or
less members in office at the time. In the event of a
Committee deadlock, the Committee shall determine the
method for resolving such deadlock. If there are two or
more Committee members, no member shall act upon any
question pertaining solely to himself, and the other
member or members shall make any determination required
by the Plan in respect thereof.
(c) The Committee may authorize any one or more of its members
to execute any document on behalf of the Committee and
shall notify the Trustee in writing of such action and the
name or names of the member or members so designated.
(d) The Committee may, by unanimous consent, delegate
specific authority and responsibilities to one or more of
its members. The member or members so designated shall be
solely liable, jointly and severally, for their acts or
omissions with respect to such delegated authority and
responsibilities. Members not so designated, except as
provided under Subsection 9.6(b), shall be relieved from
liability for any act or omission resulting from such
delegation.
(e) The Committee shall endeavor not to engage in any
prohibited transactions, as specified in ERISA. However,
any member of the Committee who is a Participant or
Beneficiary shall not be precluded from receiving benefits
payable under the Plan.
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9.3 AUTHORITY AND RESPONSIBILITY
The Committee and its delegates shall have full discretionary
authority and responsibility for administration of the Plan. Such
authority and responsibility shall include, but shall not be limited
to the
(a) appointment of enrolled actuaries (as defined in ERISA),
qualified accountants, consultants, administrators, counsel
or other persons it deems necessary or advisable, who shall
serve the Committee as advisors only and shall not exercise
any discretionary authority, responsibility or control with
respect to the management or administration of the Plan;
Any action of the Committee on the basis of advice,
opinion, reports, etc. furnished by such enrolled
actuaries, qualified accountants, consultants,
administrators, or counsel shall solely be the
responsibility of the Committee.
Members of the Committee shall not be precluded from
serving the Committee in any other capacity, provided any
compensation paid for such services is reasonable.
(b) determination of eligibility to participate and all
benefits, and resolution of all questions arising from the
administration, interpretation and application of the Plan,
including the validity of a Qualified Domestic Relations
Order;
(c) notification to the Trustee of all benefits payable under
the Plan and the manner in which such benefits are to be
paid;
(d) adoption of forms and regulations for the administration
of the Plan;
(e) adoption of the funding method;
(f) remedy of any inequity resulting from incorrect
information received or communicated, or of
administrative error;
(g) assurance that its members, the Trustee and other persons
who handle funds or other property of the Trust Fund are
bonded as required by law;
(h) settlement or compromise of any claims or debts arising
from the operation of the Plan and the commencement of
any legal actions or administrative proceeding;
(i) direction to the Trustee as to specific investments, which
under the terms of the Trust Agreement, may be made only
upon written direction of the Committee or which are made
in accordance with specific provisions of the Plan, such as
annuity or group investment contracts;
(j) act as agent for the service of legal process.
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(k) communication regarding the liquidity needs of the Plan
so that investment discretion can be exercised to effect
specific objectives.
9.4 RECORDS AND REPORTS
(a) The Committee shall keep a record of its proceedings and
acts and shall keep such books of account, records and
other data necessary for the proper administration of the
Plan.
(b) The Committee shall make its records available for
examination by the Company, or any Participant or
Beneficiary during business hours at the principal place of
business of the Company. However, a Participant or
Beneficiary may examine only records pertaining exclusively
to himself and such other records specified by law.
(c) The Committee shall make available to any Participant or
Beneficiary any material required by law without cost.
The Committee may, upon written request by any
Participant or Beneficiary, provide copies of such
material as it deems appropriate and furnish copies of
such material required by law. The Participant or
Beneficiary may be required to pay the reasonable cost,
as determined by the Committee, of preparing and
furnishing such material or the cost as prescribed by law.
9.5 REQUIRED INFORMATION
The Company, Participants or Beneficiaries entitled to benefits
shall furnish to the Committee any forms, including but not limited
to annuity applications, and any information or evidence, as
requested by the Committee for the proper administration of the
Plan. Failure on the part of any Participant or Beneficiary to
comply with such request within a reasonable period of time shall be
sufficient grounds for delay in the payment of benefits until the
information or evidence requested is received.
9.6 FIDUCIARY LIABILITY
(a) Any member of the Committee who breaches any of the
responsibilities, obligations, or duties imposed on
fiduciaries by law, shall be liable to the Plan for any
losses resulting from such breach.
(b) A member of the Committee shall be liable for a breach of
fiduciary responsibility by another Committee member or
Trustee, with respect to the Plan or Trust Fund, under the
following circumstances:
(i) He knowingly participates in or undertakes to
conceal an act or omission of another member
of the Committee or Trustee, if he knows the
act or omission is such a breach.
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(ii) If his failure to comply with Subsection
9.2(a) has enabled such other member or
Trustee to commit such a breach.
(iii) He has knowledge of such a breach by such
other member or Trustee and does not make
reasonable efforts under the circumstances to
remedy the breach.
9.7 PAYMENT OF EXPENSES
Those members of the Committee who are full-time paid employees of
the Company shall serve without compensation. The expenses of the
Committee, including reasonable compensation as may be agreed upon
in writing between the Company and the Committee, for members of the
Committee who are not full-time paid employees of the Company shall
be deemed administrative expenses payable in accordance with Section
3.5.
9.8 INDEMNIFICATION
The Company may agree in writing to indemnify and hold the members
of the Committee harmless against liability incurred in the
administration of the Plan, except for the gross negligence or
willful misconduct of any member.
9.9 QUALIFIED DOMESTIC RELATIONS ORDERS
(a) Qualified Domestic Relations Order
(i) A Qualified Domestic Relations Order
(hereinafter referred to as "QDRO") is a
Domestic Relations Order which creates or
recognizes the existence of an Alternate
Payee's right to, or assigns to an Alternate
Payee the right to, receive all or a portion
of the benefits payable with respect to a
Participant under the Plan, and which the
Committee has determined meets the
requirements of Paragraphs (ii) and (iii).
(ii) A Domestic Relations Order meets the
requirements of a QDRO only if the order
clearly specifies
(A) the name and the last known mailing
address (if any) of the Participant
and the name and mailing address of
each Alternate Payee covered by the
order;
(B) the amount or percentage of the
Participant's benefits to be paid by
the Plan to each such Alternate
Payee, or the manner in which such
amount or percentage is to be
determined;
(C) the number of payments or period to
which such order applies; and
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(D) that the order applies to this Plan.
(iii) A Domestic Relations Order meets the
requirements of a QDRO only if the order
(A) does not require the Plan to provide
any type or form of benefits, or any
option, not otherwise provided
under the Plan;
(B) does not require the Plan to provide
increased benefits (determined on
the basis of actuarial value); and
(C) does not require the payment of
benefits to an Alternate Payee which
are required to be paid to another
Alternate Payee under another
Domestic Relations Order previously
determined to be a QDRO.
(iv) In the case of any payment before a
Participant has separated from service, a QDRO
shall not be treated as failing to meet the
requirements of Paragraph (iii)(A) above
solely because the order requires the payment
of benefits to an Alternate Payee
(A) on or after the date on which the
Participant attains (or would have
attained) the Earliest Retirement
Age;
(B) as if the Participant had retired on
the date such payment is to begin
under such order; and
(C) in any form in which such benefits
may be paid under the Plan to the
Participant (other than in the form
of a joint and survivor annuity with
respect to the Alternate Payee and
his or her subsequent spouse).
(v) For purposes of Paragraph (iv), Earliest
Retirement Age means the earlier of
(A) the date on which the Participant is
entitled to a distribution under the
Plan; or
(B) the later of (1) the date the
Participant attains age 50 or (2) the
earliest date on which the
Participant could begin receiving
benefits under the Plan if such
Participant separated from service.
Notwithstanding any provisions of the Plan to
the contrary, for purposes of Subparagraph (A)
above, a distribution to an Alternate Payee
may be made prior to the date on which the
Participant is entitled to a distribution
under Section 8.3 if requested by the
Alternate Payee to the extent such
distribution is
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permitted under the QDRO. Nothing in this
provision shall permit the Participant to
receive a distribution at a date otherwise not
permitted under Section 8.3 nor shall it
permit the Alternate Payee or receive a form
of payment not permitted in Section 6.1 or
8.4.
(b) Procedures
Upon receipt of a Domestic Relations Order, the Committee
shall take, or cause to be taken, the following actions:
(i) The Committee shall promptly notify the
Participant, each Alternate Payee covered by
the order and each representative for these
parties of the receipt of the Domestic
Relations Order. Such notice shall include a
copy of the order and these QDRO Procedures
for determining whether such order is a QDRO.
(ii) Once a Domestic Relations Order has been
received no distributions will be made from
the Plan to the Participant upon a subsequent
termination until after the payment to the
Alternate Payee has been determined, unless
the Committee determines the order not to be a
QDRO.
(iii) Within a reasonable period after receipt of a
Domestic Relations Order, the Committee shall
determine whether it is a QDRO and shall
notify the parties indicated in Paragraph (i)
of such determination. Such notice shall
indicate whether the benefits payable to the
Alternate Payee in accordance with the QDRO
are subject to a previously existing QDRO.
(iv) Pending the Committee's determination of
whether a Domestic Relations Order is a QDRO,
if payments are due to be paid to the
Participant, the Committee shall withhold
payment and separately account for the amounts
otherwise payable to the Alternate Payee
during such period if the order is
subsequently determined to be a QDRO
(hereinafter referred to as the "segregated
amounts"). If, within the 18-month period
beginning with the date the first payment
would have been required to be made under the
Domestic Relations Order, the Committee
determines the order to be a QDRO, the
Committee shall pay the segregated amounts,
including any interest thereon, to the person
or persons entitled thereto. If, within such
18-month period, the Committee determines an
order is not a QDRO or the Committee fails to
reach a decision, the Committee shall pay the
segregated amounts to the Participant. If,
after the 18-month period, the Committee
subsequently determines that the order is a
QDRO,
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the Committee shall pay benefits subsequent to
such determination in accordance with the
order. If action is taken in accordance with
this Subsection (b), the Plan's obligation to
the Participant and each Alternate Payee shall
be discharged to the extent of any payment
made pursuant to the QDRO.
(v) In determining the segregated amounts in
accordance with Paragraph (iv), the
Participant's vested interest shall be
prorated between the Participant and Alternate
Payee and the entire amount of any nonvested
interest will be credited to the Participant
and not taken into consideration in making
such determination. Any future accruals will
be credited to the Participant and not the
Alternate Payee.
(vi) Upon a determination by the Committee that a
Domestic Relations Order is a QDRO, the
Committee shall arrange for benefits to be
paid to the Alternate Payee in accordance with
such order and Sections 8.3 and 8.4 as if the
Participant had terminated employment at such
time.
(vii) If benefits are not immediately distributable
to the Alternate Payee, such amount shall be
separately accounted for until such time as
the distribution is made.
(viii) The Alternate Payee shall be treated as a
Beneficiary for all purposes of the Plan.
The foregoing provisions are effective for QDROs entered into on or
after January 1, 1985, except that, in the case of a Domestic
Relations Order entered into before January 1, 1985, the Committee
(i) may treat such order as a QDRO even though such order fails to
meet the requirements of Subsections (a)(ii) and (iii) above, and
(ii) must treat such order as a QDRO if benefits were being paid
pursuant to such order on January 1, 1985.
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ARTICLE 10
AMENDMENT, MERGER AND TERMINATION OF THE PLAN
10.1 AMENDMENT
(a) The Plan may be amended or otherwise modified by the
Board of Directors and copies of any such amendment or
modification shall be sent to the governing body of each
Company. It shall be deemed each Company consented to
such amendment or modification unless its governing body
delivers written notice to the contrary to the Board of
Directors, the Committee and the Trustee within 30 days
of its receipt of such amendment or modification. The
rights of anyone who retired, terminated employment or
died before the effective date of any amendment to the
Plan shall be determined in accordance with the terms and
provisions of the Plan in effect on the date of such
retirement, termination of employment or death, except as
otherwise specifically provided in such amendment.
(b) No amendment or modification shall
(i) prior to the satisfaction of all expenses of
the Trust Fund and all liabilities under the
Plan with respect to all Participants or their
Beneficiaries, permit any part of the Trust
Fund to be used for or diverted to purposes
other than the exclusive benefit of the
employees of the Employer or their
Beneficiaries and payment of taxes,
administrative expenses and expenses incurred
in effectuating such changes;
(ii) reduce any Participant's Accrued Benefit
unless such amendment is approved by the
Secretary of the Treasury in accordance with
the provisions of ERISA;
(iii) reduce the value of nor eliminate any option
or Retirement subsidies available to a
Participant with respect to benefits
previously accrued to the extent the
Participant satisfied, either before or after
the amendment, the conditions for the subsidy
or form of payment except as otherwise
permitted under Treasury regulations; or
(iv) reduce the vested percentage, determined as
of the later of the effective date of the
amendment or the date such amendment is
adopted, of an Employee who was a Participant
as of such date.
10.2 MERGER OF PLANS
Upon the merger or consolidation of any other plan with this Plan or
the transfer of assets or liabilities from this Plan to any other
plan, all Participants of this Plan shall be entitled to a
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benefit immediately after the merger, consolidation or transfer (if
the merged, consolidated or transferee plan had then been
terminated) at least equal to the benefit they would have been
entitled to receive immediately before such merger, consolidation or
transfer (if the Plan had then terminated).
10.3 PARTIAL TERMINATION
In the event of a partial termination of the Plan, the rights of all
affected Participants to their Accrued Benefits accrued to the date
of such partial termination shall be nonforfeitable, subject to
Section 10.4 relative to the allocation of the Trust Fund assets
where the Trust Fund assets are insufficient to pay Accrued Benefits
in full. Such benefits will be paid in the time and manner
applicable under all other provisions of the Plan subsequent to
termination of employment.
10.4 TERMINATION OF PLAN
(a) While the Plan and Trust Fund are intended to be
permanent, they may be terminated at any time by the
Board of Directors, provided that before the satisfaction
of all expenses (including any expenses incurred in
effectuating the termination of the Plan and Trust Fund)
and all liabilities with respect to Participants or their
Beneficiaries, no part of the Trust Fund is to be used
for or diverted to purposes other than for the Plan and the
payment of the expenses of the Trust Fund.
Written notification of such termination shall be given to
each Company, the Trustee, the Committee, and each
Participant and each Beneficiary entitled to or receiving
benefits. In addition, notice of the proposed termination
shall be filed with the PBGC.
Upon termination of the Plan, the rights of all
Participants who are affected by such termination to their
Accrued Benefits accrued to the date of such termination
shall be nonforfeitable.
(b) Notwithstanding the above, any termination (other than a
partial termination or an involuntary termination
pursuant to Section 4042 of ERISA) must satisfy the
requirements and follow the procedures outlined herein and
in Section 4041 of ERISA for a Standard Termination or a
Distress Termination. Upon any termination (full or
partial), all amounts shall be allocated in accordance with
the provisions hereof and the Accrued Benefit, to the
extent funded as of such date, of each affected Participant
shall become fully vested and shall not thereafter be
subject to forfeiture.
(c) STANDARD TERMINATION PROCEDURE
(i) The Administrator shall first notify all
"affected parties" (as defined in Section
4001(a)(21) of ERISA) of the Employer's
intention to terminate the
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Plan and the proposed date of termination.
Such termination notice must be provided at
least sixty (60) days prior to the proposed
termination date. However, in the case of a
standard termination, it shall not be
necessary to provide such notice to the
Pension Benefit Guaranty Corporation (PBGC).
As soon as practicable after the termination
notice is given, the Administrator shall
provide a follow-up notice to the PBGC setting
forth the following:
(A) a certification of an enrolled
actuary of the projected amount of
the assets of the Plan as of the
proposed date of final distribution
of assets, the actuarial present
value of the "benefit liabilities"
(as defined in Section 4001(a)(16) of
ERISA) under the Plan as of the
proposed termination date, and
confirmation that the Plan is
projected to be sufficient for such
"benefit liabilities" as of the
proposed date of final distribution;
(B) a certification by the Administrator
that the information provided to the
PBGC and upon which the enrolled
actuary based his certification is
accurate and complete; and
(C) such other information as the PBGC
may prescribe by regulation.
The certification of the enrolled actuary and
of the Administrator shall not be applicable
in the case of a plan funded exclusively by
individual insurance contracts.
(ii) No later than the date on which the follow-up
notice is sent to the PBGC, the Administrator
shall provide all Participants and
Beneficiaries under the Plan with an
explanatory statement specifying each such
person's "benefit liabilities", the benefit
form on the basis of which such amount is
determined, and any additional information
used in determining "benefit liabilities" that
may be required pursuant to regulations
promulgated by the PBGC.
(iii) A standard termination may only take place if
at the time the final distribution of assets
occurs, the Plan is sufficient to meet all
"benefit liabilities" determined as of the
termination date.
(d) DISTRESS TERMINATION PROCEDURE
(i) The Administrator shall first notify all
"affected parties" of the Employer's intention
to terminate the Plan and the proposed date of
termination. Such termination notice must be
provided at least sixty (60) days prior to the
proposed termination date.
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As soon as practicable after the termination
notice is given, the Administrator shall also
provide a follow-up notice to the PBGC setting
forth the following:
(A) a certification of an enrolled
actuary of the amount, as of the
proposed termination date, of the
current value of the assets of the
Plan, the actuarial present value (as
of such date) of the "benefit
liabilities" under the Plan, whether
the Plan is sufficient for "benefit
liabilities" as of such date, the
actuarial present value (as of such
date) of benefits under the Plan
guaranteed under Section 4022 of
ERISA, and whether the Plan is
sufficient for guaranteed benefits as
of such date;
(B) in any case in which the Plan is not
sufficient for "benefit liabilities"
as of such date, the name and address
of each Participant and Beneficiary
under the Plan as of such date;
(C) a certification by the Administrator
that the information provided to the
PBGC and upon which the enrolled
actuary based his certification is
accurate and complete; and
(D) such other information as the PBGC
may prescribe by regulation.
The certification of the enrolled actuary and
of the Administrator shall not be applicable
in the case of a plan funded exclusively by
individual insurance contracts.
(ii) A distress termination may only take place if:
(A) the Employer demonstrates to the PBGC
that such termination is necessary to
enable the Employer to pay its debts
while staying in business, or to
avoid unreasonably burdensome pension
costs caused by a decline in the
Employer's work force;
(B) the Employer is the subject of a
petition seeking liquidation in a
bankruptcy or insolvency proceeding
which has not been dismissed as of
the proposed termination date; or
(C) the Employer is the subject of a
petition seeking reorganization in a
bankruptcy or insolvency proceeding
which has not been dismissed as of
the proposed termination date, and
the bankruptcy court (or such other
appropriate court) approves the
termination and
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determines that the Employer will be
unable to continue in business
outside a Chapter 11 reorganization
process and that such termination is
necessary to enable the Employer to
pay its debts pursuant to a plan of
reorganization.
(e) Upon termination of the Plan and Trust Fund, as soon as
administratively feasible within the time prescribed by
PBGC Regulation Sections 2616.29 and 2617.28, the Trustee
as authorized and directed by the Committee, shall
distribute the respective amount allocated for each
Participant and Beneficiary, in cash, in property or
through the purchase of irrevocable commitments form an
insurer, in a manner consistent with the Plan. Any
excess balance remaining in the Trust Fund, after all
liabilities to Participants and their Beneficiaries have
been satisfied and after all expenses of the Plan and
Trust Fund have been satisfied, shall be paid to the
Company.
(f) The termination of the Plan shall comply with such other
requirements and rules as may be promulgated by the PBGC
under authority of Title IV of ERISA, including any rules
relating to time periods or deadlines for providing notice
or for making a necessary filing.
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ARTICLE 11
PARTICIPATING COMPANIES
11.1 ADOPTION BY OTHER ENTITIES
Any corporation or other business entity may, by resolution of its
own governing body, and with the written approval of the Board of
Directors, adopt the Plan and thereby become a Company.
Notwithstanding the adoption of the Plan by other entities, the Plan
will be administered as a single plan and all Plan assets will be
available to pay benefits to all Participants under the Plan.
11.2 ACTUARIAL VALUATION
The Committee shall have the Plan's actuary make a single actuarial
valuation with respect to the Plan to determine the contribution as
required in accordance with Article 3.
11.3 ALTERNATIVE PROVISIONS
No Company may adopt alternative provisions as to itself or its
Employees.
Upon request of the governing body of a Company, the Board of
Directors may amend the plan with respect to the Employees of such
Company provided that any change will only apply if the inequity
resulting from changed Plan provisions is not found to be
discriminatory on behalf of Highly Compensated Employees.
11.4 RIGHT TO WITHDRAW (PLAN SPINOFF)
Each Company having adopted the Plan shall have the right as of the
last day of any month to withdraw from the Plan and/or Trust
Agreement by delivering to the Board of Directors, the Committee and
the Trustee written notification from its own governing body of such
action and setting forth the date as of which the withdrawal shall
be effective.
11.5 PROCEDURE UPON WITHDRAWAL
(a) If a Company withdraws from the Plan and Trust Agreement as
the result of its adoption of a different plan, the Trustee
shall segregate the portion of the Trust Fund attributable
to the Company.
As soon as administratively feasible following receipt of a
favorable letter of determination from the Internal Revenue
Service with regard to the adoption of such successor plan,
the Trustee shall transfer the segregated assets to the
insurance carrier or fiduciary designated by the Company as
the agency through which the benefits of such successor
plan are to be disbursed.
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(b) If a Company withdraws from the Plan and Trust Agreement
as the result of its adoption of a resolution to
terminate its participation in the Plan and to distribute
assets to its Employees who are Participants, the Trustee
shall segregate the portion of the Trust Fund
attributable to the Participants who are employed solely
by such Company, and the termination provisions of
Article 10 shall apply with respect to such segregated
assets.
(c) The portion of the Trust Fund to be segregated shall be
determined as the sum of the amounts allocated to such
Participants as if the Plan had terminated and assets
allocated in accordance with Section 10.5, subject to
Section 414(l)(2)(B) of the Code.
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ARTICLE 12
TOP-HEAVY PROVISIONS
12.1 TOP-HEAVY PROVISIONS
If the Plan is or becomes Top-Heavy in any Plan Year beginning after
December 31, 1983, the provisions of this Article will supersede any
conflicting provisions in the Plan.
12.2 DEFINITIONS
As used in this Article, each of the following terms shall have the
meanings for that term set forth in this Section 12.2:
(a) DETERMINATION DATE means, for any Plan Year subsequent to
the first Plan Year, the last day of the preceding Plan
Year. For the first Plan Year of the Plan, the last day of
that year.
(b) DETERMINATION PERIOD means the Plan Year containing the
Determination Date and the four preceding Plan Years.
(c) KEY EMPLOYEE means any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the
Determination Period was:
(i) an officer of the Employer having an annual
Compensation greater than 50% of the dollar
limitation under Section 415(b)(1)(A) of the
Code for any Plan Year within the
Determination Period;
(ii) an owner (or an individual considered an
owner under Section 318 of the Code) of one of
the ten largest interests in the Employer, if
such individual's Compensation exceeds 100% of
the dollar limitation under Section
415(c)(1)(A) of the Code;
(iii) a "5-percent owner" (as defined in Section
416(i) of the Code) of the Employer; or
(iv) a "1-percent owner" (as defined in Section
416(i) of the Code) of the Employer who has an
annual Compensation of more than $150,000.
The determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the
regulations thereunder.
(d) NON-KEY EMPLOYEE means an Employee who is not a Key
Employee.
(e) PERMISSIVE AGGREGATION GROUP means the Required Aggregation
Group of plans plus any other plan or plans of the Company
which, when considered as a group with the Required
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Aggregation Group, would continue to satisfy the
requirements of Sections 401(a)(4) or 410 of the Code.
(f) PRESENT VALUE means the present value used in computing the
top-heavy ratio and shall be based on the interest and
mortality rates specified in Subsection 1.2(a).
(g) REQUIRED AGGREGATION Group means:
(i) each Qualified Plan of the Employer in which
at least one Key Employee participates or
participated at any time during the
Determination Period (regardless of whether
the plan has terminated); and
(ii) any other Qualified Plan of the Employer
(regardless of whether the plan has
terminated) which enables a plan described in
(i) to meet the requirements of Sections
401(a)(4) and 410 of the Code.
(h) SUPER TOP-HEAVY PLAN means the Plan, if the Top-Heavy
Ratio as determined under the definition of Top-Heavy
Plan exceeds 90%.
(i) TOP-HEAVY PLAN means the Plan, if any of the following
conditions exist:
(i) If the Top Heavy Ratio for the Plan exceeds
60% and the Plan is not part of any Required
Aggregation Group or Permissive Aggregation
Group of plans.
(ii) If the Plan is a part of a Required
Aggregation Group of plans but not part of a
Permissive Aggregation Group and the Top-Heavy
Ratio for the Group of plans exceeds 60%.
(iii) If the Plan is a part of a Required
Aggregation Group and part of a Permissive
Aggregation Group of plans and the Top-Heavy
Ratio for the Permissive Aggregation Group
exceeds 60%.
(j) TOP-HEAVY RATIO means:
(i) If the Employer maintains one or more defined
contribution plans (including any "simplified
employee pension" within the meaning of
Section 408(k) of the Code) and the Company
has never maintained any defined benefit plan
which during the 5 year period ending on the
Determination Date has or has had accrued
benefits, the Top-Heavy Ratio for this Plan
alone or for the Required or Permissive
Aggregation Group, as appropriate, is a
fraction, the numerator of which is the sum of
the Account balances of all Key Employees as
of the Determination Date (including any part
of any account balance distributed in the 5
year period ending on the Determination Date)
and the
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denominator of which is the sum of all Account
balances (including any part of any Account
balance distributed in the 5-year period
ending on the determination date(s)) both
computed in accordance with Section 416 of the
Code. Both the numerator and denominator of
the Top-Heavy Ratio are increased to reflect
any contribution not actually made as of the
Determination Date, but which is required to
be taken into account on the date under
Section 416 of the Code and the regulation
thereunder.
(ii) If the Employer maintains one or more defined
contribution plans (including any simplified
employee pension plan) and the Employer
maintains or has maintained one or more
defined benefit plans which during the 5-year
period ending on the Determination Date(s) has
or has had any accrued benefits, the Top-Heavy
ratio for any Required or Permissive
Aggregation Group, as appropriate, is a
fraction, the numerator of which is the sum of
account balances under the aggregated defined
contribution plan or plans for all Key
Employees, determined in accordance with
Section 12.2(j)(i), and the present value of
accrued benefits under the aggregated defined
benefit plan adjusted or plans for all Key
Employees as of the Determination Date(s), and
the denominator of which is the sum of the
Account balances under the aggregated defined
contribution plan or plans for all
participants determined in accordance with
Section 12.2(j)(i) above, and the present
value of accrued benefits under the defined
benefit plan or plans for all participants as
of the Determination Date(s), all determined
in accordance with Section 416 of the Code and
the regulations thereunder. The accrued
benefits under a defined benefit plan in both
the numerator and denominator of the Top-Heavy
Ratio are increased for any distribution of an
accrued benefit made in the 5 year period
ending on the Determination Date.
(iii) For purposes of Section 12.2(j)(i) and (ii),
the value of Account balances and the present
value of accrued benefits will be determined
as of the most recent Valuation Date that
falls within or ends with the twelve-month
period ending on the Determination Date,
except as provided in Section 416 of the Code
and the regulations thereunder for the first
and second Plan Years of a defined benefit
plan. The account balances of a Participant
(1) who is not a Key Employee but who was a
Key Employee in a prior year, or (2) who has
not received any Compensation from the
Employer at any time during the five-year
period ending on the Determination Date, will
be disregarded. The calculation of the
Top-Heavy Ratio, and the extent to which
distributions,
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<PAGE>
rollovers, and transfers are taken into
account will be made in accordance with
Section 416 of the Code and the regulations
thereunder. Deductible employee contributions
will not be taken into account for purposes of
computing the Top-Heavy Ratio. When
aggregating plans the value of Account
balances will be calculated with reference to
the Determination Dates that fall within the
same calendar year. The accrued benefit of a
Participant other than a Key Employee shall be
determined under (A) the method, if any, that
uniformly applies for accrual purposes under
all defined benefit plans maintained by the
employer, or (B) if there is no such method,
as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under
the fractional rule of section 411(b)(1)(c) of
the Code.
(k) VALUATION DATE means the most recent date used for
determining costs under Section 412 of the Code which falls
within the 12-month period ending on the Determination
Date.
12.3 MINIMUM ACCRUED BENEFIT
(a) The Accrued Benefit of any non-Key Employee Participant
on or after the first day of the first Plan Year the Plan
is determined to be Top-Heavy shall not be less than 2% of
his Average Compensation times his full and fractional
Years of Service to a maximum of 10 Years of Service.
For purposes of this Subsection, Years of Service shall
not include Service before January 1, 1984, before the
Participant's date of Plan participation, while under the
jurisdiction of a collective bargaining agreement or
during any Plan Year the Plan is determined not to be
Top-Heavy. The minimum benefit payable upon such
Participant's Retirement at his Deferred Retirement Date
shall be the greater of the retirement income based on
such Service at his actual Retirement Date or the
Actuarial Equivalent of the minimum benefit which would
have been provided at his Normal Retirement Date. Such
benefit shall be reduced by the amount of any retirement
income (converted to the life only annuity form) provided
for him under all other Defined Benefit Plans maintained
by the Employer.
(b) For purposes of this Section, only benefits derived from
Employer contributions are to be taken into account to
determine whether the minimum benefit has been satisfied.
(c) For purposes of this Section, Average Compensation means
the Participant's Compensation averaged over the five
full consecutive years for which the Participant had the
highest Compensation and which end before the Plan Year
that the Plan ceases to be Top-Heavy. Compensation
during any year the Participant is not credited with a
full Year of Service shall not be included in this
average.
65
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(d) An Eligible Employee who has not met the 1,000 hour
requirement for eligibility in accordance with Article 2
shall not be considered a Participant for purposes of this
Section.
(e) An employee of a business entity which has not adopted the
Plan shall not be considered a Participant for purposes of
this Section unless also employed by the Company.
(f) The minimum accrued benefit required (to the extent
required to be nonforfeitable under Code Section 416(b))
may not be forfeited under Code Section 411(a)(3)(B) or
411(a)(3)(D).
12.4 MINIMUM VESTING
(a) The following vesting schedule shall be substituted for the
vesting schedule under Section 5.3 as of the first day of
the first Plan Year the Plan is determined to be Top-Heavy
for persons not under the jurisdiction of a collective
bargaining unit.
NUMBER OF YEARS PERCENTAGE OF ACCRUED BENEFIT
--------------- -----------------------------
Less than 2 full years 0%
2 full years 20%
3 full years 40%
4 full years 60%
5 full years 80%
6 or more full years 100%
(b) If the Plan ceases to be Top-Heavy, all Participants with
three or more Years of Service as of the beginning of
such Plan Year, shall continue to be covered by the above
schedule. All other Participants shall, for each
succeeding Plan Year, be entitled to the vested
percentage determined under the schedule in Section 5.3,
provided that such vested percentage shall not be less
than the vested percentage determined under the schedule
in Subsection (a) as of the last day of the last Plan
Year the Plan was Top-Heavy.
12.5 LIMITATION ON BENEFITS
For each Plan Year the Plan is determined to be Top-Heavy or Super
Top-Heavy, the reference to "1.25" in Item (1) of Paragraphs (B) of
Subsections 4.5(i)(i) and (ii) will be changed to read "1.0".
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ARTICLE 13
GENERAL PROVISIONS
13.1 EXCLUSIVENESS OF BENEFITS
The Plan has been created for the exclusive benefit of the
Participants and their Beneficiaries. No part of the Trust Fund
shall ever revert to the Employer nor shall such Trust Fund ever be
used other than for the exclusive benefit of the employees of the
Employer and their Beneficiaries, except as provided in Sections
3.1, 3.5 and 10.6, provided, however, that contributions made by the
Company by mistake of fact may be returned to the Company within one
year of the mistaken payment of the contribution. No person shall
have any interest in or right to any part of the Trust Fund, or any
equitable right under the Trust Agreement, except to the extent
expressly provided in the Plan or Trust Agreement.
13.2 LIMITATION OF RIGHTS
Neither the establishment of the Plan, nor any modification thereof,
nor the creation of any fund, trust or account, nor the purchase of
Annuities, nor the payment of any benefits shall be construed as
giving any Participant, Beneficiary or any other person whomsoever,
any legal or equitable right against the Employer, the Committee, or
the Trustee, unless such right shall be specifically provided for in
the Plan or conferred by affirmative action of the Committee or the
Employer in accordance with the terms and provisions of the Plan; or
as giving any Participant or any other employee of the Employer the
right to be retained in the service of the Employer and all
Participants and other employees shall remain subject to discharge
to the same extent as if the Plan had never been adopted.
13.3 CONSTRUCTION OF AGREEMENT
The Plan shall be construed according to the laws of the State in
which the Company named under Section 1.12 has its principal place
of business, and all provisions hereof shall be administered
according to, and its validity shall be determined under, the laws
of such State, except where pre-empted by Federal law.
13.4 SEVERABILITY
Should any provision of the Plan or any regulation adopted
thereunder be deemed or held to be unlawful or invalid for any
reason, such fact shall not adversely affect the other provisions or
regulations unless such invalidity shall render impossible or
impractical the functioning of the Plan, and, in such case, the
appropriate parties shall immediately adopt a new provision or
regulation to take the place of the one held illegal or invalid.
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<PAGE>
13.5 TITLES AND HEADINGS
The titles and headings of the Sections in this instrument are,
except for Article 1, for convenience of reference only and, in the
event of any conflict, the text rather than such titles or headings
shall control.
13.6 COUNTERPARTS AS ORIGINAL
The Plan has been prepared in counterparts, each of which so
prepared shall be construed as an original.
68
Exhibit 10.11
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
Agreement of Lease, made as of this 30th Day of April 1990, between DIAMANDIS
COMMUNICATIONS INC., a Delaware corporation with offices at 1633 Broadway, New
York, New York 10036 (sometimes referred to herein as "Owner" or "Landlord")
CAPITAL FACTORS, INC., a Florida corporation, with offices at 1799 West Oakland
Park Boulevard, Fort Lauderdale, Florida 33311, party of the second part,
hereinafter referred to as TENANT.
Witnesseth:
Owner hereby leases to Tent and Tenant hereby hires from Owner a portion of the
fortieth (40th) floor (the "demised premises") substantially as shown on Exhibit
A annexed hereto in the building known as 1633 Boardway in the Borough of
Manhattan, City of New York, (the "Building") for the term of five (5) years
(sometimes referred to herein as the "Term") (or until the Term shall sooner
cease and expire as hereinafter provided) to commence on the Commencement Date
and to end on the Expiration Date (as such terms are defined in Article 63
below) at a fixed annual rental rate (sometimes referred to herein as the "Fixed
Rent") of (i) $274,170 per annum from the Commencement Date through the date
that is one day prior to the third (3rd) anniversary of the Commencement Date
and (ii) $303,810 from the third (3rd) anniversary of the Commencement Date
through the Expiration Date which Tenant agrees to pay in lawful money of the
United States which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, in equal monthly installments in
advance on the first day of each month during said term, at the office of Owner
or such other place as Owner may designate, without any set off or deduction
whatsoever, except that Tenant shall pay $50,000 on the execution hereof which
amount shall be applied to the installments of Fixed Rent first coming.
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to such monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT OCCUPANCY
1. Tenant shall pay the rent as above and as hereinafter provided. See Rider
Paragraphs 40, 56.
2. Tenant shall use and occupy demised premises for executive offices. See Rider
Paragraph 43.
TENANT ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provision of this article, Tenant at Tenant's expense, may
make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner. Tenant shall, before making
any alterations, additions, installations or improvements, at its expense,
obtain all permits, approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final approvals
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner and Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may require. If any
mechanic's lien is filed against the demised premises, or the building of which
the same forms a part, for work claimed to have been done for, or materials
furnished to, Tenant, whether or not done pursuant to this article, the same
shall be discharged by Tenant within days thereafter, at Tenant's expense, by
filing the bond required by law. All fixtures and all paneling, partitions,
railings and like installations, installed in the premises at any time, either
by Tenant or by Owner in Tenant's behalf, shall, upon installation, become the
property of Owner and shall remain upon and be surrendered with the demised
premises unless Owner, by notice to Tenant no later than twenty days prior to
the date fixed as the termination of this lease, elects to relinquish Owner's
right thereto and and to have them removed by Tenant, in which event the same
shall be removed from the premises by Tenant prior to the expiration of the
lease, at Tenant's expense. Nothing in this Article shall be construed to give
Owner title to or to prevent Tenant's removal of trade fixtures, moveable office
furniture and equipment, but upon removal of any such from the premises or upon
removal of other installations as may be required by Owner. Tenant shall
immediately and at its expense, repair and restore the premises to the condition
existing prior to installation and repair any damage to the demised premises or
the building due to such removal. All property permitted or required to be
removed, by Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the premises by
Owner, at Tenant's expense. See Rider Paragraph 52.
MAINTENANCE AND REPAIRS
4. Tenant shall, throughout the term of this lease, take good care of the
demised premises and the fixtures and appurtenances therein. Tenant shall be
responsible for all damage or injury to the demised premises or any other part
of the building and the systems and equipment thereof. Another requiring
structural or nonstructural repairs caused by or resulting from carelessness,
omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or which arise out of any work, labor, service
or equipment done for or supplied to Tenant or any subtenant or arising out of
the installation, use or operations of the property or equipment of Tenant or
any subtenant. Tenant shall also repair all damage to the building and the
demised premises caused by the moving of Tenant's fixtures, furniture and
equipment. Tenant shall promptly make, at Tenant's expense, all repairs in and
to the demised premises for which Tenant is responsible, using only the
contractor for the trade or trades in question, selected from a list of at least
two contractors per trade submitted by Owner. (2) shall maintain in good working
order and repair the exterior and the structural portions of the building,
including the structural portions of its demised premises, and the public
portions of the building interior and the building plumbing, electrical, heating
and ventilating systems to the extent such systems presently exist serving the
demised premises. Tenant agrees to give prompt notice of any defective condition
in the premises for which Owner may be responsible hereunder. There shall be no
allowance to Tenant for dimunition of rental value and no liability on the part
of Owner by reason of inconvenience, annoyance or injury to business arising
from Owner or others making repairs, alterations, additions or improvements in
or to any portion of the building or the demised premises or in and to the
fixtures, appurtenances or equipment thereof. It is specifically agreed that
Tenant shall not be entitled to any setoff or reduction of rent by reason or any
failure of Owner to comply with the covenants of this or any other articles of
this Lease. Tenant agrees that Tenant's sole remedy at laws in such instance
will be by way of an action for damages for breach of contract. The provisions
of this Article 4 shall not apply in the case of fire or other casualty which
are dealt with in Article 9 hereof.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any window in the
demised premises to be cleaned from the outside in violation of Section 202 of
the Labor Law or any other applicable law or of the Rules of the Board of
Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS:
6. Prior to the commencement of the lease term, if Tenant is then in possession,
and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and regulations of all
state, federal municipal and local governments, departments, commissions and
boards and any direction or any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters, Insurance
Services Office, or any similar body which shall impose any violation, order or
duty upon (2.1) or Tenant with respect to the demised premises, whether or not
arising out of Tenant's use or manner of use thereof, (including Tenant's
permitted use) or, with respect to the building it arising out of Tenant's
<PAGE>
use or manner of use or the premises or the building (including the use
permitted under the lease). Nothing herein shall require Tenant to make
structural repairs or alterations unless Tenant has, by; its manner or use of
the demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect hereto.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises which is contrary to law, or which will invalidate or be in conflict
with public liability, fire or other policies of insurance at any time carried
by or for the benefit of Owner with respect to the demised premises or the
building of which the demised premises form a part, or which shall or might
subject Owner to any liability or responsibility to any person or for property
damage. Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be
imposed upon Owner by reason of Tenant's failure to comply with the provisions
of this article and if by reason of such failure the fire insurance rate shall,
at the beginning of this lease or at any time thereafter, be higher than it
otherwise would be, then Tenant shall (3) reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged becuase of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable to
said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's judgement, to absorb and prevent
vibration, noise and annoyance. See Rider Paragraph 47(H), 51.
SUBORDINATION
7. This lease is subject and subordinate to all ground of underlying leases and
to all mortages which may premises are a part and to all renewals,
modifications, consolidation, replacements and extensions of any such underlying
leases and mortgages. This clause shall be self-operative and no further
instrument of subordination shall be required by any ground or underlying lessor
or by any mortagee, affecting any lease of the real property of which the
demised premises are a part. In confirmation of such subordination, Tenant
shall execute promptly any certificate that Owner may request.
PROPERTY LOSE. DAMAGE, REIMBURSEMENT, INDEMNITY:
8. Owner or its agents shall not be liabel for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of or
damage to any property of Tenant by theft of otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsever nature,
unless caused by or due to the negilgence of Owner, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused by
other tenants or persons in, upon or about said building or caused by operation
in construction of any private, public or quasi public work. If any time any
windows of the demised premises are temporarily closed, darkned or ancked up
(or permanently closed, darkened or bricked up, if required by law) for any
reason reason whatsoever including, but not limited to Owner's own acts. Owner
shall not be liable for any damage Tenant may sustain thereof and Tenant shall
not be entitled to any compensation therefor nor abatement of giminution of
rent nor shall the same release Tenant from its obligations nerunder nor
constitute an eviction. Tenant shall indemnify and save narmless Owner against
and from all liabilities, obligation, damages, penalities, claims, costs and
expenses for which Owner shall not be reimbursed by insurance, including
reasonabel attorneys fees, paid, suffered or incurred as a result of any oreach
by Tenats, Tenant's agents, contractors, employees, invitees, or licensees, of
any covenant or condition of this lease, or the carelessness, negligence or
improper conduct of the Tenant. Tenant's agents, contractors, employees,
invitees or licensees. Tenant's liability under theis lease extends to the acts
and omissions or any sub-tenant. In case any action or proceeding is brought
against Owner by reason of any such claim. Tenant, upon written notice from
Owner, will at Tenant's expense, resist of deemd such action or proceeding by
counsel approved by Owner in writing such approval not to be unreasonably
withheld. SEE RIDER PARAGRAPHS 49,59.
DESTRUCTION, FIRE AND OTHER CASUALLY:
9.(a) If the demised premises or any part thereof shall be damaged by fire or
other casualty. Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinatter set forth,
(b) if the cemised premises are partiaily damaged or rendered partiaily
unusable by fire or other casuaity, the damaged thereto shall be repaired by and
at the expense of and the rent, until such repair shall be substantiaily
completed, shall be apportioned from the day following the casuaity according to
the part of the premises which is disable.(c) If the demised premises are
totally damaged or rendered wholunusable by fire or other casuaity, the the
rent shall be proportionated paid up to the of the casuaity and thenceforth
shall cease until the date when the premises shall have been repaired and
restoreed by Owner subject to Owner's (5) right to elet not to restore the same
as pereinalter provided (d) If are rendered wholly unusable or whether or not
the demised premises are damaged in whole or in part if the building shall be so
damaged theat (6) shall decide to demoush it or to rebuild it, then, in any of
such events, Owner may elect to terminate this lease by written notice to
Tenant, given within 90 days after such fire or casualty, specifying a date for
the expiration of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expore as fully and completely as if scuh date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to Landlord's
rights and remedies against Tenant under the lease provisions in effect prior to
such termination, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Owner shall serve a termination
notice as provided for herein. Owner shall (7) make the repairs and restorations
under the conditions of (b) and (c) hereof, with all reasonable expedition,
subject to delays due to adjustment of insurance claims, labor troubles and
causes beyond (6) control. After any such casualty, Tenant shall cooperate with
(6) restoration by removing from the premises as promptly as reasonably
possible. All of Tenant's salvageable inventory and movable equipment,
furniture, and other property. Tenant's liability for rent shall resume five (5)
days after written notice from Owner that the premises are substantially ready
for Tenant's occupancy, (e) Nothing contained hereinabove shall relieve Tenant
from liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law. Owner
and Tenant each hereby releases and wailves all right of recovery against the
other or any one claiming through or under each of them by way of subrogation or
otherwise. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release
or waiver shall not invalidate the insurance. If, and to the extent, that such
waiver can be obtained only by the payment of additional premiums, then the
party benefitting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provision
hereof with respect to waiver of subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements or appurtenances removabel by Tenant and
agrees that Owner will not be obiligated to repair any damage thereto or replace
the same.(f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu therof. 8
EMINENT DOMAIN:
10. If the whole o4r any part of the demised premises shall be acquired or
congemined by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall sease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of daid lease and assigns to Owner. Tenant's entire
interest in any such award.
ASSIGNMENT MORTGAGE ETC,:
11. Tenant, for itself, its heirs, distributees, executors, administrators.
Legal represtentatives, successors and assigns, expressly covenants that it
shall not assign. mortgage or encumber theis agreement. Not underlet, or suffer
or permot the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant shall be deemed an assignment. If this lease
be assigned, or if the demised premises or any part thereof be underlet or
occupied by anybody other than Tenant. Owner may, after default by Tenant,
collect rent from the assignee. under-tenant or occupant, and apply the net
amount collected to the rent herein reserved. but no such assignment,
underletting,occupancy or collection shall be deemed a waiver of theis
covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant,or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant from herein contained. The consent by Owner to
an assignment or underletting shall not in any wise be construed to relieve
Tenant from obtaining the express consent in writting of Owner to any further
assignment or underletting. SEE RIDER PAPAGRAPH 44.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusiion. as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and Tenant
may not use any electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the building. The change at any time of the character of
electric service shall in no wise make Owner liable or responsible to Tenant,
for any loss, damages or sxpenses which Tenant may sustain. SEE RIDER PAPAGRAPH
42.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right(but shall not be obligated to
enter the demised premises in any emergency at any time, and, at other
reasonable times, jto examine the same and tjo make such repairs, replacements
and improvements as Owner (9) may deem necessary and reasonably desirable to the
demised premises or to any other portion of the building or which Owner (9) may
elect to perform. Tenant shall permot Owner to use and maintain and replace
popes and conduits in and through the demised premises and to erect new pipes
and conduits therein provided they are concealed within the walls, floor. or
ceiling. Owner (9) may, during the progress or any work in the demised premises,
take all necessary materials and equipment into said premises without the same
constituting an eviction nor shall the Tenant be entitled to any abatement or
rent while such work is in progress nor to any damages by reason or loss or
interruption of business or otherwise. Throughout the term hereof Owner (9)
shall have the right to enter the demised premises at reasonable hours for the
purpose of showing the
<PAGE>
same to prospective purchasers mortgagees of the building, and during
the last six months of the term for the purpose allowing the same to
prospective tenants. If Tenant is not present to open and permit an entry
into the premises. Owner's agent (9) may enter the same whenever
such entry may be necessary or permissible by master key or forcibly and
provide reasonable care is exerised to safeguard Tenant's property,
such entry shall not render Owner or its agents liable therefor, nor in any
event shall the obligations of Tenant hereunder be affected. If during the
last of the term Tenant shall have removed all or substantially all
of Tenant's property therefrom. Owner (9) may immediately enter,thereafter
renovate or redecorate the demised premises without limitation or abate-
ment or rent, or incurring liability to Tenant for any compensation and
the act shall have no effect on this lease of Tenant's obligations
hereunder.
VAULT, VAULT SPACE, AREA
14. No Vaults, vault space or area, whether or not enposed or covered, not
within the property lilne of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan or anything
contained elsewhere in this lease to the contirary notwithstanding. Owner makes
no representation as to the location of the property lline of the building.All
vaults and vault space and all such areas not within the property lilne of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license. and if any such license be revoled,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utilty. Owner shall not be subject to any
liability nor shall Tenant be entitled to any compensation or diminution or
apatement of rent, nor shall such revocation, diminution or requistion be
deemend constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant.
OCCUPANCY
15. Tenant will not at any time use or occupy the demised premises in violation
of the certificate of occupancy issued for the building of which the demised
premises are a part. Tenant has inspected the premises and accepts them as is,
subject to the nders annexed hereto with respect to Owner's work, if any. In any
event, Owner makes no represtentation as to the condition of the premises and
Tenant agrees to accept the same subject to violations, whether or not of
record.
BANKRUPTCY
16.(a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by the sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assign-
ment or any other arrangement for the benefit of creditors under any state
statute. Neither Tenant nor any person claiming through or under Tenant, of by
reason of any statute or order of court, shall thereafter be entitiled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this lease shall be assigned in accordance with its terms, the
provisions of this provisions of this Article 16 shall be appliciable only to
theparty then owning Tenant's interest in this lease SEE RIDER PARAGRAPH 50.
(b) its is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the compuration of such damages the fifference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of termina-
tion at the rat of four percent(4%) per annum. If such premises or any part
thereof be relect by the Owner for the unexpired term of said lease, or any part
thereof, before presentation of proof of such liquidated damages to any court,
commission of tribunal, the amount of rent reserved upon such reletting shall be
deemed to be the fair and reasonabel rental value for the parto of the whole of
the premises so re-let during the term of the re-letting. Nothing herein
contained shall limit or prejudice the right of the Owner to prove for and
obtain as liquidated damages by reason of such termination. An amount equal to
the maximum allowed by any staatute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved,
whether or not such amount be greater, equal to, or less than the amount of the
difference refered to above.
DEFAULT:
17.(1) If tenant defaults in fulfilling any of the covenants of theis lease
other than the covenants for the payment of rent or additional rent; or if the
demised premises becomes vacant or deserted:or if any execution or attachment
shall be issued against Tenant or any of Tenant's property whereupon the demised
premises shall be taken or occupied by soneon other than Tenant; or if this
lease be rejected under235 of Title 11 of the U.S. Code(bankruptcycode): or
ifTenant shalll fail to move into or take possession of the premises within
fifteen (15) days after the commencement of the term of this lease, then. in any
on or more of sch events, uopon Owner serving a written five (5) days notice
upon Tenant specifyin the nature of daid default and upon the expiration of said
five (50 days. If Tenant shall have failed to comply with of remedy such
default, of if the daid default or ommission complainded of shall be of a nature
that the same cannot be completekt cyred if remitdied within said five (5) day
period, and if Tenant shalll not have dillgently commenced during such default
within such five (5) day period, and shall not thereafter with reasonably
diligence and in good faith, proceed to remedy or cure such default, then Owner
may serve a written three (5) days notice of cancellation of theis lease upon
Tenant, and upon the expiration of said three(3) days this lease and the term
thereunder shall end and expire as fully and completely as if the expiration of
such three (3) day period were the day herein definitely fixed for the end and
expiration of this lease and the term thereof and Tenant shall then quit and
surrender the demised premises to Owner but Tenant shall remanin liable as
nereinalter provided. (2) if the notice provided for in (1) hereof shall have
been gilven.and therefore shall expire as aforesaid: or if Tenant shall make
default in the payment of the rent reserved herein or any itemk of additional
rent herein mentioned or any part of either or in making any other paymentherein
required: then and in any of such events Owner may without notice. Re-enter the
demised premises either by force or otherwise and disposses Tenant by summary
proceedings or otherwise. and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this liase had not been made, and Tenant hereof waives the service of notice
of inension to re-enter or to institute legal proceedings to that end. If Tenant
shall make default herunder prior to the date fixed as the commencement of any
renenwal or extension of theis lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPION:
18. In case of any such default, re-entry, expiration and/ or dispossess by
summary proceedings or otherwise (a) the rent shall become due thereupon and
be paid up to the time of such re-entry, dispossess and/or expiration. (b) Owner
may re-let the premkises or any part or parts thereof, either in the name or
Owner or otherwise for a term or term, which may at Owner's option be less than
or exceed the period which would otherwise have constituted the balance of the
term of this lease and may grant concessions or tree rent or charge a highter
rental than that in this lease. and/or(c) Tenant or the legal representatives of
Tenant shall also pay Owner as liquidated damages for the failure of Tenant to
observe and perform said Tenant's convenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any of the rents collected on account of the lease or leases of the
demised premises for each month of the period which would otherwise have
constituted the balance of the term of this lease. The failure of Owneer to
re-let the premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. In computing such liquidated damages there shall
be added to the said deficiency such expenses as Owner may incur in connection
with re-letting, such as legal expenses, attorneys` fees brokerage, advertising
and for keeping the demised premises in good orderor for preparing the same for
re-letting Any such liquidated damages shall be paid in monthly installment by
Tenant on the rent day specified in theis lease and any suit brought to
collect the amount of the deficiecy for any month shall not prejudice in any way
the rights of Owner to collect het deficiency for any month shall not pre-
judice in any way the rights of Owner to collect the deficiency of any
subsequent month by a similar proceeding. Owner, in putting the demised premises
in good order or preparing the same for re-rental may at Owner's option. Make
such alterations, repairs, replacements, and/or decorations in the demised
premises asOwner, in Owner,s sole judgment, considers advisable and neccesary
for the purpose of re-letting the demised premises, and the making of such
alterations, repairs, replacements, and/or decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Owner shall
in no event be liable in any way whatsoever for failure to re-let the demised
premises, or in the thereof under such re-letting, and in no event shall Tenant
be entitiled to receive any excess. If any, of such net rents collected over the
sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were
not herein provided for. Mention in this lease of any particular remedy, shall
not preclude Owner from any other remedy, in law of in equity. Tenant herby
expressly waives any and all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or sispossessed for
any cause, or in the event of Owner obtaining possession of demissed premises,
by reason of the violation by Tenant of any of the covenants and conditions of
this lisase, or otherwise SEE RIDER PARAGRAPH 55.
FEES AND EXPENSES
19. If Tenant shall default in the observance or performance of any term or
covenant on Tenant,s part to be obeserved or performed under or by virtue of any
of the terms or provisions in any article of this lease, then, unless other-
wise provided elsewhere in this lease, Owner may immediately or at any
tunethereafter and without notice perform the obligation of Tenant thereunder.
If Owner, in connection with the foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder, makes any expenditures or incure
any obligations for the payment of money, including but not limited to
attorney,s fees, in instituting, prosecuting or defending any action or
proceeding, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant,s default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within five (5) days of rendition of any bill
or statement to Tenant therefor. If Tenant,s lease term shall have expired at
the time of making recoverable by Owner as damages SEE RIDER PARAGRAPH 47(B)
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting an
eviction and withour incurring liability to Tenant therefor to enange the
arrangement and/or location of public entrancees. passageways. doors. doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the part of owner by reason of inconvenience. annovance or injury
to business arising from Owner or other Tenants making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or promises
with respect to the physical condition of the building, the land upon which
<PAGE>
has erected or the dimised premises. The sales, leases, expenses of operation or
any other matter or thing affecting or relating to the premises except as herein
expressly set forth and no rights, easements or licenses are required by Tenant
by implication or otherwise except as expressly set forth in the provisions of
this lease. Tenant has inspected the building and has demised premises and is
thoroughly acquainted with their condition and agrees to take the same "as is"
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conslusive evidence on the said premises and the buidling of which the
same form a part were in good and and satisfactory condition at the time such
possession was so taken, except as to patent defects. All understandings and
agreements therefore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought. See Rider Paragraph 48.
END OF TERM: 22. Upon the expiration or other termination of the term of this
lease. Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease expected, and Tenant
shall remove all his property. Tenant's obligation to observe or perform his
covenant shall survive the expiration or other termination of this lease. If the
last day of the term of this Lease or any renewal thereof, falls on Sunday, this
lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at nooon on the preceding business day.
See Rider Paragraph 54.
QUIET ENJOYMENT: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereof demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION: 24. If Owner is unable to give possession of the
diemised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been producured or for any other reason. Owner shall not be
Tenant shall not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or promises
with respect to the physical condition of the building, the land upon when has
erected or the dimised premises. The sales, leases, expenses of operation or any
other matter or thing affecting or relating to the premises except as herein
expressly set forth and no rights, easements or licenses are required by Tenant
by implication or otherwise except as expressly set forth in the provisions of
this lease. Tenant has inspected the building and has demised premises and is
thoroughly acquainted with their condition and agrees to take the same "as is"
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conslusive evidence on the said premises and the buidling of which the
same form a part were in good and and satisfactory condition at the time such
possession was so taken, except as to patent defects. All understandings and
agreements therefore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and tEnant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought. See Rider Paragraph 48.
END OF TERM: 22. Upon the expiration or other termination of the term of this
lease. Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease expected, and Tenant
shall remove all his property. Tenant's obligation to observe or perform his
covenant shall survive the expiration or other termination of this lease. If the
last day of the term of this Lease or any renewal thereof, falls on Sunday, this
lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at nooon on the preceding business day.
See Rider Paragraph 54.
QUIET ENJOYMENT: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereof demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION: 24. If Owner is unable to give possession of the
diemised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been producured or for any other reason. Owner shall not be
subject to any liabilty for failur to give possession on said date and the
validity of the lease shall not be impaired under such circumstances, nor shall
the same be construed in any wise to extend the term of this lease, but the rent
payable hereunder shall be abated provided Tenant is not responsible for Owner's
inability to obtain possession until after Owner shall have given Tenant written
notice that the premises are substantially ready for Te- nant's occupancy. If
permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this lease. Tenant coventants and
agrees that such occupancy shall be deemed to be under all the terms, covenants,
conditions and provision of this lease. except as to the covenant to pay rent.
The provisions of this article are intended to consutute"an express provision to
the contrary" within the meaning of Section 223-a of the New York Real Property
Law
NO WAIVER
25. The failure of Owner to seek redress for violation of, or to insist upon the
strict performance of any covenant or condition of this lease or of any of the
Rules or Regulations, set forth or herafter adopted by Owner, shall not prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation. The receipt by Owner of rent
with knowledge of the breach of any covenant of this lease shall not be deemed a
waiver of such breach an do provision of this lease shall be deemed to have been
waived by Owner unless such waiver be in writing signed by Owner. No payment by
Tenant or receipt by Owner of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check of any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Owner may accept such check or payment without prejudice to
Owner,s right to recover the balance of such rent or pursue any other remedy in
this lease provided. No act or thing done by Owner or Owner's agents during the
term hereby demised shall be deemed an acceptance of a surrender of said
premises, and no agreement to accept such surrender shall be valid unless in
writing signed by Owner or. No employee of Owner or Owner's agent shall have any
power to accept the keys of said premises prior to the termination of the lease
and the delivery of keys to any such
agent or employee shall not operate as a termination of the lease or a sur-
render of the premises.
WAIVER OF TRIAL BY JURY:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties herein shall and they hereby do waive trial by jury in any action,
proceeding of counterclaim brought by either of the parties hereto against the
other except for personal injury or property damage on any matters whatsoever
arising but of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or ocupancy of said premises, and any
emergency statutory of any other statutory remedy. It is further mutually agreed
that in the event Owner commences any summary proceeding for possession of the
premises. Tenant will not interpose any counterclaim or whatever nature or
description in any such proceeding including a counterclaim under Article 4.
INABILITY TO PERFORM:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be per-
formed shall in no wise be affected, impaired or excused because Owner is unable
to fulfill any of its obligations under this lease or to supply or is delayed in
supplying any service expressly or impliedly to be supplied or is unable to
make. or is delayed in making any repair, additions, alterations decorations or
is unable to supply or is delayed in supplying any equipment or fixtures if
Owner is prevented or delayed from so doing by reasonof strike or labor troubles
or any cause whatsoever includesbut not limited to, government preemption in
connection with a National Emergency or by reason of any rule, orderor
regulation of any department or subdivision thereof of any government agency or
by reason of the conditions of supply and demand which have been or are affected
by war or other emergency.
BILLS AND NOTICES:
28. Except as otherwise in this lease provided, a bill, statement, notice or
communication which Owner may desire or be requires to give to Tenant, shall be
deemed sufficiently given or endered if, in writing. Delivered to Tenantperson-
ally or sent by registered or certified mail addressed to Tenant at the building
of which the demised premises form a part or at the last known residence address
or business address of Tenant or left at any of the aforesaid premises addressed
to Tenant, and the time of the rendition of such bill or statement and of the
giving of such notice or communication shall be deemed to be the time when the
same is delivered to Tenantmail- ed, or left at the premises as herein provided.
Any notice by Tenant to Owner must be served by registered or certified mail
addredded to Owner at the address first hereinabove given or at such other
address as Owner shall designate by written notice, SEE RIDER PARAGRAPH 60.
SERVICES PROVIDED BY OWNERS
29. As long as Tenant is not in default under any of the covenants of this
lease.(11) Shall provide:(a) necessary elevator facilities on business days from
8 a.m. to 6 p.m. and have one elevator subject to call at all other times: (b)
heat to the demised premises when and as required by law, on business days from
8 a.m. to 6 p.m.(c) water for ordinary lavatory purposes or in unusual quanities
of which( fact Owner shall be the tole judge), Owner may install a water meter
at Tenant's expense which Tenant shall thereafter maintain at Tenant's expense
in good working order and repair to register such water consumption and Tenant's
shall pay for water consumed as shown on said meter as additional rent(12) as
and when bills are rendered:(d) cleaning service for the demised premises on
business days at (11) expenses provided that the same are kept in order by
Tenant.Tenant shall pay (11) the costs of removal of any of Tenant's refuse and
rubbish from the building. (f) Owner reserves the right to stop services of the
heating, elevators.(12.1) plumbing, air-conditioning, power systems or cleaning
or other services, if any, when necessary by reason of accident or for repairs,
alterations replacement or improvements necessary or desirable in the judgement
of Owner for as long as may be reasonanbly required by reason thereof SEE RIDER
PAPAGRAPH 45.
CAPITIONS:
30. The Capitions are inserted only as a matter of convenience and for reference
and in no way define. limit or decribe the scope of this lease not the intent of
any provisions thereof.
DEFINITIONS:
31. The term office or offices wherever used in this lease, shall not be
construed to mean premises used as astore or strores. for the sale or display,
at any time. of goods wares or merchandise, of any kind, or as a restaurant,
shop, booth, boothblack or other strand, barber shop or for other similar
purposes or for manufacturing. The term"Owner" means a landlord or lessor, and
as used in this lease means only the owner, or the mortgagee in possession, for
the time being of the land and building for the owner of a lease of the building
or of the land and building of which the demised premises form a part so that in
the event of any sale or sales of said land and building or of said lease, or in
the event of a lease of said building, or of the land and building the said
Owner shall be and hereby is entirely freed and relieved ]of all covenants and
obligations of Owner herunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties andt the purchaser, at any such sale, of the said lessee of
the building or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner, hereunder. The words"re-enter" and "re-enter" as used in
this lease are not restricted to their technical legal meaning. The
term"business days" as used in this lease shall exclude Saturdays (except such
portion thereof as is covered by specific hours in Article 29 hereof Sundays and
all days observed by the State or Federal Governmentas legal holidays and those
designated as holidays by the applicable building service union employees
service contract or by the applicable Operating Engineers contract with respect
to HVAC Sertvice. SEE RIDER PARAGRAPH 58.
<PAGE>
Adjacent Excavating Shorting: 32. If an excavation shall be made to land
adjacent excavating to the defused premeters, or shall be authorized to be made.
Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the demised premises for the purpose of doing
such work as said person shall deem necessary preserve the wall or the building
or which demised premises form a part from injury or damage ad to support the
same by proper foundations without any claim for damages or indemnity against
Owner, or dominion or apartment of rent.
Rules and
Regulations
33. Tenant and Tenant's servants, employees, agents, visitors and licensees
shall observe faithfully, and comply sincerely with the Rules and Regulations
and such owner and further reasonable Rules and Regulations as Owner or Owner's
agents may from time to time require. Notice of any additional rules of
regulations shall be given in such manner as Owner may elect. 13 In case Tenant
disputes the reasonableness of any additional Rule or Regulation thereafter made
or adopted by Owner or Owner's agents, the parties thereto agree to submit the
question of the reasonalbness of such Rule or Regulation for discussion to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonalbness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within ten (10) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees. See Rider Paragraph 61.
Space to be filed in or deleted.
SEE RIDER ANNEXED HERETO AND MADE A PART HEREOF.
Successors
and Assigns:
36. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Owner and Tenant and their respective heirs,
distributes, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written;
Witness of Owner: DIAMANDIS COMMUNICATIONS INC. CORP.
SEAL
By: /s/ Danial Parker V.P. [L.S.]
------------------------------
Witness of Tenant: CAPITAL FACTORS, INC. CORP.
SEAL
/s/ [illegible] By: /s/ John Kiefer, Pres. [L.S.]
- ------------------- ------------------------------
ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, SS.:
County of
On this 30 day of April, 1990, before me personally came John W. Kiefer
to me known, who being by me duly sworn and depose and say that he resides
in Broward Co., Florida, that he is the Pres. of Capital Factors Inc.
the corporation described in and which executed the foregoing instrument,
as TENANT: that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal: that it was so affixed by order
of the Board of Directors of said corporation, and that he signed his name
thereto by like order.
/s/ [illegible]
-------------------------------
NOTARY PUBLIC STATE OF FLORIDA AT LARGE
MY COMMISSION EXPIRES JULY 4, 1992
BONDED THROUGH ASHTON AGENCY INC
<PAGE>
RIDER TO LEASE DATED , 1990 BETWEEN
DIAMANDIS COMMUNICATIONS INC., AS LANDLORD, AND
CAPITAL FACTORS, INC., AS TENANT
If and to the extent that any of the provisions of this
rider conflict or are otherwise inconsistent with any of the
printed provisions of this lease, whether or not such
inconsistency is expressly noted in this rider, the provisions
of this rider shall prevail.
37. SUBLEASE
(A) This agreement (the "Lease") is a sublease and is
subject and subordinate to the lease dated as of February 6,
1989, between Paramount Group, Inc., as Agent for MRI Broadway
Rental, Inc. ("Prime Landlord") and Diamandis Communications
Inc., as tenant, as same may be amended (the "Prime Lease").
Landlord represents that (i) the copy of the Prime Lease
delivered to Tenant is true and correct to the extent thereof,
(ii) the Prime Lease is in full force and effect, (iii) the
consent of Prime Landlord to this Lease is not required, (iv)
insofar as Landlord is aware, Landlord is not in default under
the Prime Lease, (v) in so far as Landlord is aware, Prime
Landlord is not in default under the Prime Lease and (vi)
Tenant has not exercised the right of termination set forth in
Section 27.06(b) of the Prime Lease and no longer has such a
termination right. Landlord shall not, without the consent of
Tenant, which consent shall not be unreasonably withheld or
delayed, enter into an amendment or modification of the Prime
Lease which would materially increase Tenant's obligations
under this Lease. Without waiving any of its rights under the
Prime Lease, Landlord shall pay all rent and perform all
obligations required under the Prime Lease so as to avoid a
default thereunder, except to the extent that such obligations
are to be performed by Tenant hereunder with respect to the
demised premises. Sublessee hereby assumes and agrees to be
bound by and observe, fulfill and perform, fully, faithfully
and promptly, all of the provisions, terms, covenants,
conditions and obligations provided in the Prime Lease to bind
and/or be observed, fulfilled and/or performed by tenant
thereunder with respect to the demised premises, to include but
not be limited to those covenants set forth in Section 5.01 of
the Prime Lease, and Landlord shall have for the purposes of
this Lease, all of rights, privileges and benefits granted to
or conferred upon Landlord under the Prime Lease. The
following provisions of the Prime Lease shall be inapplicable
to this Lease: Sections 1.02, 1.03, 1.04, 1.06, Article 2,
Sections 3.01, 3.05, 7.06, Article 14, Sections 17.05, 17.06,
24.09, 25.15, 26, 28.03, 28.04, Articles 29, 31, 32, 33, 37 and
38 and Exhibits A. through G. and J. through S. to the Prime
Lease.
38. LANDLORD HAS NO OBLIGATIONS
(A) Tenant agrees that to the extent Prime Landlord fails
or refuses to perform its obligations or to provide services
under the Prime Lease, Landlord shall not be obligated to
perform such obligations and Landlord shall have no liability
or obligation with respect thereto. Tenant agrees that no
failure or delay on the part of Prime Landlord in the
performance of any obligation under the Prime Lease to supply
any service or to make any repairs or replacements or to take
any other action with respect to the demised premises or the
Building shall give rise to any claim against Landlord for
damages or constitute a total or partial eviction, nor shall
this Lease or the obligations of the Tenant hereunder to pay
rent hereunder and to perform and observe all of the other
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obligations, covenants, conditions and agreements on the part
of Tenant contained in this Lease be thereby affected in any
manner whatsoever; provided, however, that to the extent such
failure or delay in performance by Prime Landlord would give
rise to a claim against Prime Landlord on the part of Landlord,
Landlord will use reasonable efforts to cooperate with Tenant,
at Tenant's expense, with respect to claims which Tenant
desires to assert against Prime Landlord with respect to such
failure or delay of Prime Landlord. Nothing set forth herein
shall require Landlord to file suit against Prime Landlord.
(B) Landlord shall not be obligated to perform and shall
not be liable for the performance by Prime Landlord of any of
the obligations of Prime Landlord under the Prime Lease, to
include but not be limited to those covenants set forth in
Section 5.02 of the Prime Lease. Tenant shall have no claim
against Landlord by reason of any default upon the part of
Prime Landlord. Nothing herein contained shall be deemed to
authorize Tenant to represent Landlord in connection with any
suit or claim by or against Prime Landlord. Landlord shall
have no obligation during the term of this Lease to render any
services to Tenant (except as set forth specifically in Article
62 and Article 65) in or to the demised premises of any nature
whatsoever or to expend any money for the preservation or
repair of the demised premises. Tenant agrees to look solely
to Prime Landlord for the furnishing of any services to which
Landlord may be entitled under the Prime Lease. Landlord
agrees to cooperate with Tenant, and to use its reasonable
efforts, without, however, incurring any liabilities or
expenses, by taking whatever action shall be reasonably
required, to enforce for the benefit of Tenant the obligations
of Prime Landlord to Landlord under the Prime Lease insofar as
they relate to the demised premises. All reasonable
out-of-pocket expenses of Landlord arising from Landlord's
action taken pursuant to the preceding sentence shall be
reimbursed by Tenant on demand.
39. CONSENT OF PRIME LANDLORD
(A) Tenant agrees that in any case where the rights
conferred upon Tenant in this Lease require the consent or
approval of Landlord, whether prior to the taking of any action
or otherwise, it shall be a condition precedent to the taking
of such action that the prior consent or approval of Prime
Landlord shall have been obtained, if such consent or approval
is required by the Prime Lease. Tenant agrees that Landlord
shall not have any duty or responsibility with respect to
obtaining the consent or approval of Prime Landlord when the
same is required, other than (i) the transmission by Landlord
to Prime Landlord of Tenant's request for such consent or
approval and (ii) Landlord's cooperation with Tenant to obtain
such approval or consent provided that such cooperation does
not require Landlord to pay any sum or incur any expense or to
make any material performance or undertaking. Landlord shall
not be required to give any consent or approval provided for
hereunder because Prime Landlord has given consent or approval
with respect to the same matter.
(B) Landlord's refusal to consent to or approve any matter
or thing, whenever Landlord's consent or approval is required
hereunder, shall be deemed reasonable, if inter alia, Prime
Landlord's consent is also so required and Prime Landlord has
refused to give such consent or approval.
40. RENTAL PAYMENTS
(A) All payments other than Fixed Rent to be made by
Tenant pursuant to this Lease shall be deemed additional rent
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and, in the event of any non-payment thereof, Landlord shall
have all rights and remedies provided for herein or by law for
non-payment of rent.
(B) Without limiting the generality of the foregoing,
additional rent shall include escalations payable pursuant to
Article 41 hereof and all amounts billed Landlord as additional
rent arising out of Tenant's use of the demised premises. To
the extent Tenant uses Building services, including without
limitation, after hours air-conditioning and heating, rubbish
removal and excessive use of water, for which Prime Landlord
shall charge Landlord, Tenant shall pay to Landlord as
additional rent hereunder, upon demand together with copies of
applicable invoices therefor, the amount of such charges
imposed upon Landlord by reason of Tenant's use of such
services, together with an administrative fee (which
administrative fee shall be in addition to any administrative
fee charged by Prime Landlord in connection with such services).
(C) All payments of Fixed Rent and additional rent to be
made by Tenant pursuant to this Lease shall be made by checks
drawn upon a Florida bank which is Tenant's parent corporation,
provided, however, that if such parent corporation acquires a
New York City bank which is a member of the New York Clearing
House Association or any successor thereto, all payments
referred to herein shall be made by checks drawn upon such New
York City bank.
(D) If Landlord receives from Tenant any payment less than
the sum of the Fixed Rent and additional rent then due and
owing pursuant to this Lease, Tenant hereby waives its right,
if any, to designate the items to which such payment shall be
applied and agrees that Landlord in its sole discretion may
apply such payment in whole or in part to any Fixed Rent, any
additional rent or to any combination thereof then due and
payable hereunder.
(E) Unless Landlord shall otherwise expressly agree in
writing, acceptance of Fixed Rent or additional rent from
anyone other than Tenant shall not relieve Tenant of any of its
obligations under this Lease, including the obligation to pay
Fixed Rent and additional rent, and Landlord shall have the
right at any time, upon notice to Tenant, to require Tenant to
pay the Fixed Rent and additional rent payable hereunder
directly to Landlord. Furthermore, such acceptance of Fixed
Rent or additional rent shall not be deemed to constitute
Landlord's consent to an assignment of this Lease or a
subletting or other occupancy of the demised premises by anyone
other than Tenant, nor a waiver of any of Landlord's rights or
Tenant's obligations under this Lease.
(F) Landlord's failure to timely bill all or any portion
of any amount payable pursuant to this Lease for any period's
during the Term shall neither constitute a waiver of Landlord
right to ultimately collect such amount or to bill Tenant at
any subsequent time retroactively for the entire amount so
unbilled, which previously unbilled amount shall be payable
within thirty (30) days after being so billed.
(G) Any Fixed Rent or additional rent which is not paid
within five (5) days of the date due shall bear interest at a
per annum rate equal to the lesser of (i) five (5) percent in
excess of the Chase Manhattan Bank, N.A. prime rate or (ii) the
maximum rate allowed by law from the due date until paid to
Landlord; provided, however, that if Tenant is not otherwise in
default hereunder, with respect to one (1) late payment, during
any lease year (the particular late payment to be determined by
Landlord in its sole discretion), Landlord shall waive the
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requirement that such late payment bear interest as set forth
above.
41. ESCALATIONS
(A) As used-in this Article 41, the words and terms which
follow mean and include the following:
(i) "Escalation Year" shall mean a calendar year of
twelve consecutive months commencing on January 1, 1991 or any
subsequent anniversary thereof in which occurs any part of the
term of this Lease.
(ii) "Tenant's Proportionate Share" shall mean .503%.
(iii) "Operating Expenses" for any period shall mean
the total amount paid by Prime Landlord for that period of the
aggregate of all expenses so defined in Exhibit B attached.
hereto, subject to the exclusions and deductions described in
that Exhibit.
(iv) "Base Operating Expenses" shall mean the actual
Operating Expenses for the calendar year ending December 31,
1990.
(v) "Real Estate Taxes" for any period shall mean the
aggregate due and payable in that period of
(a) Real estate taxes and assessments imposed
upon the plot of land on which the Building is located
(the "Land") and/or Building and payable by Prime
Landlord (including, without limitation, (x) real
estate taxes upon any "air rights" or payable by Prime
Landlord to a ground lessor with respect thereto and
(y) any assessments levied after the date of this
Lease for public benefits of the Land and/or the
Building, which assessments, if payable in
installments shall be deemed payable in the maximum
number of permissible installments) in the manner in
which such taxes and assessments are imposed as of the
date hereof;
(b) In the event of a change in the taxation of
real estate by which any other tax or assessment of
any kind or nature (including, without limitation, any
occupancy, gross receipts or rental tax) is imposed
upon Prime Landlord or the owner of the Land and/or
the Building, or upon or with respect to the Land
and/or the Building or the occupancy, rents or income
therefrom, in substitution for in addition to any of
the foregoing Real Estate Taxes, such other taxes or
assessment; plus
(c) All expenses, including legal fees, experts'
and other witnesses' fees, incurred in contesting the
validity or amount of Real Estate Taxes for any
Escalation Year in the term of this Lease, whether or
not successful in lowering the amount of Real Estate
Taxes.
Notwithstanding anything to the contrary in this
Lease, Real Estate Taxes shall exclude and there shall be
deducted therefrom (and there shall not be included in
Operating Expenses):
(I) Any franchise or income tax (except as
provided in subsection (v)(b) above) of
Prime Landlord or Landlord;
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(II) Any amount that would otherwise constitute
Real Estate Taxes but results from
improvements made by or for the sole benefit
of Tenant to the Building or its Premises,
for which Tenant acknowledges it is solely
liable and shall be paid as additional rent;
and
(III) An amount equal to any refund or credit
(including interest and reimbursement of
expenses) received by Prime Landlord in that
Escalation Year on account of amounts
included in Real Estate Taxes in any prior
year.
(IV) An amount equal to any refund or credit
(including interest and reimbursement of
expenses) received by Prime Landlord in that
Escalation Year on account of amounts
included in Real Estate Taxes in any prior
year; and
(V) Amounts that would otherwise constitute Real
Estate Taxes but result from a sale or
transfer of the beneficial ownership of the
Building or Prime Landlord's interest
therein, according to the following schedule:
In the first Escalation Year in which
all or any part of the increase is assessed,
75` of such increase.
In the second Escalation Year in which
all or any part of the increase is assessed,
50% of such increase.
In the third Escalation Year in which
all or any part of the increase is assessed,
25% of such increase.
Thereafter, there shall be no exclusion.
For the purposes of this Section, "increase by reason
of a sale or transfer of the beneficial ownership of
the Building or Prime Landlord's interest therein"
shall mean any increase in Real Estate Taxes after
such sale or transfer of the beneficial ownership of
the Building or Prime Landlord's interest therein over
and above an annual increase equal to the average of
the increases in Real Estate Taxes over each of the
preceding five Escalation Years. In no event shall
there be included in Real Estate Taxes in excess of
the amount actually payable by Prime Landlord for Real
Estate Taxes in such Escalation Year.
(vi) "Real Estate Tax Base" shall mean the amounts
within the definition of Real Estate Taxes due and payable in
the period from July 1, 1990 to and including June 30, 1991,
plus any expenses described in subsection (v)(c) above with
respect to such periods.
(vii) "Escalation Statement" shall mean a statement
delivered pursuant to Section 41(C).
(B) (i) Landlord shall furnish to Tenant, within one
hundred twenty (120) days after the commencement of each
Escalation Year, a written statement setting forth Landlord's
reasonable estimate of the amount by which Operating Expenses
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for such Escalation Year are expected to exceed Base Operating
Expenses; provided, however, that Landlord's failure or delay
in delivering any such statement shall not constitute a default
by Landlord or be deemed a waiver of Landlord's right to
deliver any such statement at a later date.
(ii) Tenant shall pay to Landlord on the first day of
each month during each Escalation Year one-twelfth of Tenant's
Proportionate Share of Landlord's estimate of the increase in
Operating Expenses for such Escalation Year over Base Operating
Expenses.
(iii) If, however, Landlord shall fail to furnish the
estimate of the increase in Operating Expenses for the first
Escalation Year prior to the commencement thereof, then on the
first day of the month following the month in which such
estimate is furnished to Tenant, Tenant shall pay to Landlord
an amount equal to one-twelfth (1/12th) of the estimated
increase shown on such statement multiplied by the number of
months elapsed in such first Escalation Year until such date
(e.g., if such statement is furnished during the third (3rd)
month of the first Escalation Year, Tenant shall pay to
Landlord four-twelfths (4/12) of the estimated increase shown
on such statement), thereafter throughout the remainder of the
first Escalation Year, Tenant shall pay to Landlord on the
first day of each month during such Escalation Year an amount
equal to one-twelfth (1/12th) of the estimated increase shown
on such statement.
(iv) If Landlord shall fail to furnish such estimate
of the increase in Operating Expenses for any Escalation Year
after the First Escalation Year prior to the commencement
thereof, then
(a) Until such estimate is furnished to Tenant,
Tenant shall continue to pay to Landlord on the first
day of each month the amount payable by Tenant to
Landlord under this Article in respect of the last
month of the preceding Escalation Year;
(b) Promptly after such estimate is furnished to
Tenant, Landlord shall give notice to Tenant stating
the amount by which the installments with respect to
Operating Expenses previously made for the current
Escalation Year were greater or less than the
installments with respect to Operating Expenses to be
made for such Escalation Year in accordance with such
estimate;
(c) If there shall then be a deficiency Tenant
shall pay the amount thereof within five (5) days
after demand therefor, or if there shall have been an
overpayment, Landlord shall refund to Tenant the
amount thereof, within twenty (20) days after the
giving such notice to Tenant; and
(d) On the first day of the month following the
month in which such estimate is furnished to Tenant,
and monthly thereafter throughout the remainder of
such Escalation Year, Tenant shall pay to Landlord on
the first day of each month during such Escalation
Year an amount equal to one-twelfth (1/12th) of the
estimated increase shown on such statement.
(C) (i) After determination of actual Operating Expenses
for an Escalation Year or actual Real Estate Taxes for a
six-month period within an Escalation Year, Landlord shall
furnish to Tenant a statement setting forth the actual amounts
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paid by Prime Landlord for such actual Operating Expenses or
Real Estate Taxes (each such statement being an "Escalation
Statement")
(ii) If an Escalation Statement shall show that the
sums paid by Tenant under Section 41(B) exceeded
(a) as to any Escalation Year prior to the last
Escalation Year, Tenant's Proportionate Share of the
actual excess of Operating Expenses of the immediately
preceding Escalation Year over Base Operating
Expenses; or
(b) as to the last escalation Year, Tenant's
Proportionate Share of the amount by which the actual
Operating Expenses for the period ending the last day
of the term of this Lease (as such Operating Expenses
may be prorated pursuant to Section 41(D)), exceeded
the amount of the Base Operating Expenses for the
corresponding number of days;
Landlord shall refund to Tenant the amount of such excess
within 20 days after delivery of such Escalation Statement.
If an Escalation Statement shall show that the sums so paid by
Tenant were less than the amounts specified in (a) or (b) of
the preceding sentence then Tenant shall pay the amount of such
deficiency within five (5) days after demand therefor.
(iii) If an Escalation Statement shall show that
(a) as to any Escalation Year prior to the last
Escalation Year, the actual Real Estate Taxes for the
relevant six-month period exceeded one half of the
Real Estate Tax Base; or
(b) as to the last Escalation Year, the actual
Real Estate Taxes for the period ending on the last
day of the term of the Lease (as such Real Estate
Taxes may be prorated pursuant to Section 41(D),
exceeded the amount of the Real Estate Tax Base for a
corresponding number of days, Tenant shall pay
Tenant's Proportionate Share of such excess within
five (5) days after demand therefor.
(D) In the event that the Expiration Date shall be a day
other than the last day of an Escalation Year, then, and in
each such event, the amounts due between the parties pursuant
to this Article for the portion of the term of this Lease
within the final Escalation Year shall be prorated according to
the number of days within the term of this Lease actually
elapsed within the final Escalation Year. Operating Expenses
shall be prorated on the basis of the actual number of days
within the final Escalation Year within the term of this Lease
and the actual total Operating Expenses for the entire
Escalation Year. Real Estate Taxes shall be prorated on the
basis of the actual number of days in the calendar half in
which the last day of the term of this Lease occurs.
(E) In no event shall the Fixed Rent under this Lease
(exclusive of the additional rent under this Article 41) be
reduced by virtue of this Article 41.
42. ELECTRICITY
(A) Subject to the terms and provisions of the Prime
Lease, and as part of the Fixed Rent, electrical energy will be
furnished to the demised premises through electrical facilities
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to be installed for Tenant's reasonable use of such lighting
and other electrical fixtures, appliances and equipment
normally present in such offices as the demised premises.
(B) Tenant's use of electric current in the demised
premises shall not at any time exceed the capacity of any of
the electrical conductors and equipment in or otherwise serving
the demised premises. Tenant shall not make or perform, or
permit the making or performing of, any alterations to wiring
installations or other electrical facilities in or serving the
demised premises or any additions to the business machines,
office equipment or other appliances in the demised premises
which utilize electrical energy other than the addition or
substitution of normal business office equipment (unless same
do not exceed the capacity of the electrical conductors or
equipment in or otherwise serving the demised premises) without
the prior written consent of Landlord in each instance.
(C) If any tax is imposed upon Landlord in connection with
the furnishing of electric current to Tenant by any Federal,
State or Local Government subdivision or authority, Tenant
shall pay Landlord an amount equal to such tax, where permitted
by law.
(D) If Prime Landlord discontinues furnishing electrical
current to Landlord, Landlord reserves the right to discontinue
furnishing electric current to Tenant in the demised premises
at any time. If Landlord exercises such right of termination,
this Lease shall continue in full force and effect and shall
not be affected thereby. If Landlord so discontinues
furnishing electric current to Tenant, the Fixed Rent then
payable shall be reduced by $27,170 per annum and Tenant shall
arrange to obtain electric current directly from the public
utility company furnishing electric current to the Building.
Such electric current may be furnished to Tenant by means of
the then existing Building system feeders, risers and wiring to
the extent that the same are available, suitable and safe for
such purposes. All meters and additional panel boards,
feeders, risers, wiring and other conductors and equipment
which may be required to obtain electric current directly from
such public utility company shall be installed and maintained
by Tenant, at its expense and subject to the approval of Prime
Landlord.
43. RESTRICTIONS ON USE
(A) Anything in Article 2 or Article 31 to the contrary
notwithstanding, Tenant shall not use or permit all or any part
of the demised premises to be used for the: (1) storage for
purpose of sale of any alcoholic beverage in the demised
premises; (2) storage for retail sale of any product or
material in the demised premises; (3) conduct of a photographic
or documentary reproduction, manufacturing, printing or
electronic data processing business, except that Tenant may
operate business office reproducing equipment, electronic data
processing equipment and other business machines for Tenant's
own requirements (but shall not permit the use of any such
equipment by or for the benefit of any party other than
Tenant); (4) rendition of any health or related services,
conduct of a school or conduct of any business which results in
the presence of the general public in the demised premises; (5)
conduct of the business of an employment agency or executive
search firm; (6) conduct of any public auction, gathering,
meeting or exhibition; (7) conduct of a stock brokerage office
or for stock brokerage purposes or for the underwriting of
securities; (8) occupancy of a foreign, United States, state,
municipal or other governmental or quasi-governmental body,
agency or department or any authority or other entity which is
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affiliated therewith or controlled thereby; and (9) conduct of
a banking, trust company or safe deposit business; (10) conduct
as a savings bank, savings and loan association or as a loan
company; (11) sale of travelers checks and/or foreign exchange;
(12) as a news and cigar stand; (13) for retail sales to other
than the employees of Tenant and its affiliated business
entities; and (14) conduct of a restaurant and/or bar for the
sale of confectionery and/or soda and/or beverages and/or
sandwiches and/or ice cream and/or baked goods or for the
preparation or dispensing of food or beverage in any manner
whatsoever.
(B) Tenant shall not use or permit all or any part of the
demised premises to be used so as to violate any of the
covenants or terms of this Lease or so as to impair the
Building's character, reputation, appearance or dignity as a
first-class office building or impose any additional burden
upon Landlord in its operation', including the proper heating,
air conditioning and servicing of the Building or the demised
premises, which impairment shall be determined by the Landlord
in its sole judgment.
(C) Tenant shall not obtain or accept for use in the
demised premises ice, drinking water, food, coffee cart,
beverage, towel, barbering, boot blacking, floor polishing,
lighting maintenance, cleaning or other similar services from
any party not theretofore approved by the Landlord. Such
services shall be furnished only at such hours, in such places
within the demised premises and pursuant to such regulations as
Landlord prescribes.
(D) Without limiting the generality of any other
provisions hereof, Tenant shall not use, generate, manufacture,
store or dispose of on or about the demised premises or
Building or cause or permit any hazardous materials (as may be
defined as such under state or federal law) to be brought upon,
stored, manufactured, or used in or about the demised premises
or Building for any purpose. Sublessee shall comply with the
Environmental Provisions set for on Exhibit C annexed hereto
and made a part hereof.
(E) If any governmental license or permit shall be
required for the proper and lawful conduct of Tenant's business
or other activity carried on in the demised premises, and if
the failure to secure such license or permit might or would, in
any way, affect Landlord, then Tenant, at Tenant's expense,
shall duly procure and thereafter maintain such license or
permit and submit the same to inspection by Landlord upon
Landlord's request. Tenant, at Tenant's expense, shall at all
times comply with the requirements of each such license or
permit, subject to Tenant's right to contest such requirements
in accordance with the terms of this Lease.
(F) Those portions, if any, of the demised premises
identified as toilets and utility areas shall be used by Tenant
only for the purposes for which they are designed and shall be
maintained by the Prime Landlord in accordance with its
responsibilities under the Prime Lease.
(G) Tenant shall not place or permit to be placed any
vending machines in the demised premises, except with the prior
written consent of Landlord in each instance, which consent
will not be unreasonably withheld provided the machines are for
the exclusive use of Tenant's employees.
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44. ASSIGNMENT, ETC.
Supplementing Article 11:
(A) A transfer of more than a fifty percent (50%)
beneficial interest in Tenant, whether such transfer occurs at
one time, or in a series of related transactions, and whether
of stock, partnership interest or otherwise, by any party in
interest shall be deemed an assignment of this Lease.
(B) This Lease may not be assigned or the demised premises
hereunder further sublet, in whole or in part, without the
prior written consent of Landlord and Prime Landlord, which
consent shall be granted or withheld in the sole discretion of
Landlord and Prime Landlord respectively; provided, however,
that Landlord shall not unreasonably withhold its consent to an
assignment of this Lease as to the entire demised premises to
an Affiliate (as defined in the Prime Lease) of Tenant or to a
sublease of the entire demised premises to a third party
(conforming in all respects to the requirements of the Prime
Lease), but Landlord makes no representation or warranty with
respect to the granting of consent by Prime Landlord to such an
assignment or sublease.
45. AIR CONDITIONING
Pursuant to the Prime Lease, Prime Landlord shall, at its
expense, through the Building's air conditioning system
("System"), provide air conditioning for the demised premises,
during the air conditioning season. Whenever the System is in
operation, Tenant shall close the venetian blinds and/or drapes
in the demised premises. Tenant shall comply with, and do all
work required by, regulations promulgated by Prime Landlord in
connection with heating, ventilating and air conditioning the
Building. Tenant agrees at all times to cooperate fully with
Owner and Prime Landlord and to abide by said regulations and
any violation of said regulations shall be cured immediately
upon notice to Tenant. After the expiration of the notice
period, in addition to any and all other rights and remedies
Owner may have, Owner may discontinue the furnishing of
overtime air conditioning service without any diminution or
abatement of rent or other compensation to Tenant whatsoever
until the default is cured. Owner and Prime Landlord shall at
all times have free and unrestricted access to any and all air
conditioning facilities in the demised premises. Owner and
Prime Landlord shall not be required to furnish, and Tenant
shall not be entitled to receive, any overtime air conditioning
during any period wherein Tenant shall be in default in the
payment of fixed or additional rent beyond any applicable cure
period as specified in this Lease.
46. BROKERAGE
Landlord and Tenant represent to each other that each has
dealt with no broker, finder, or agent other than The Lansco
Corporation, Mayfair Properties of Greater NY Ltd. and Williams
Real Estate Co. Inc. (collectively, the "Brokers") in
connection with this Lease and Landlord shall pay any and all
commissions due to Brokers pursuant to a separate agreement.
Tenant shall indemnify and hold Landlord harmless against any
liability, claim, cost and expense (including without
limitation reasonable attorney's fees) for any claim or action
asserted by any other broker, finder or agent other than
Brokers for any other brokerage commission or finder's fee
based on alleged actions of Tenant or its agents or
representatives. Landlord shall indemnify and hold Tenant
harmless against any liability, claim, cost and expense
(including without limitation reasonable attorney's fees) for
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any claim or action asserted by any other broker, finder or
agent other than Brokers for any other brokerage commission or
finder's fee based on alleged actions of Landlord or its agents
or representatives. The parties' respective liabilities
hereunder shall survive any expiration or termination of this
Lease.
47. SUBMISSION TO JURISDICTION, ETC.
(A) This Lease shall be deemed to have been made in New
York County, New York, and shall be construed in accordance
with the laws of the State of New York. All actions or
proceedings relating, directly or indirectly, to this Lease
shall be litigated only in courts located within the County of
New York. Tenant, any guarantor of the performance of its
obligations hereunder ("Guarantor") and their successors and
assigns hereby subject themselves to the jurisdiction of any
state or federal court located within such county, waive the
personal service of any process upon them in any action or
proceeding therein and consent that such process be served by
certified or registered mail, return receipt requested,
directed to the Tenant and any successor at Tenant's address
hereinabove set forth, to Guarantor and any successor at the
address set forth in the instrument of Guarantee and to any
assignee at the address set forth in the instrument of
assignment. Such service shall be deemed made two days after
such process is so mailed.
(B) Whenever any default, request, action or inaction by
Tenant causes Landlord to incur attorneys' fees and/or any
other costs or expenses, Tenant agrees that it shall pay and/or
reimburse Landlord for such fees, costs or expenses within five
(5) days after being billed therefor; provided, however, that
in any action brought upon this Lease, the parties agree that
the fees, costs and expenses of the prevailing party shall be
paid or reimbursed by the nonprevailing party.
(C) The submission of this Lease to Tenant shall not
constitute an offer by Landlord to execute and exchange a lease
with Tenant and is made subject to Landlord's acceptance,
execution and delivery thereof.
48. "AS IS"
Supplementing Article 21, the demised premises shall be
leased to Tenant in their "as is" condition on the Commencement
Date and other than Landlord's Initial Installation (as defined
in Article 62) Landlord shall not be required to perform any
work to prepare the demised premises for Tenant's occupancy.
Subject to Section 67(A), the taking of possession of the
demised premises by Tenant shall be conclusive evidence as
against Tenant that, at the time such possession was so taken,
the demised premises and the Building were in good and
satisfactory condition and Landlord's Initial Installation was
Substantially Completed (as defined in Article 62). At no time
will Landlord be obligated to exterminate vermin which may
infest the demised premises. Upon request, Landlord shall give
Tenant copies of any reports or certifications it receives from
Prime Landlord in respect of Section 2.01(c) of the Prime Lease.
49. INSURANCE
(A) During the Term Tenant shall pay for and keep in
force: (1) comprehensive general liability policies in standard
form with respect to the demised premises and its appurtenances
protecting against any and all liability occasioned by accident
or occurrence, for bodily injury, death and property damage
with minimum limits of liability in the amount of $5 million
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combined single limit for bodily injury, death and property
damage (including all operations of Tenant, products, completed
operations, independent contractors, broad form property
damage, personal injury liability and contractual liability
coverage); (2) if the nature of Tenant's business is such as to
place all or any of its employees under workers' compensation
or similar statutes, worker's compensation or similar insurance
affording statutory coverage and containing statutory limits;
and (3) all-risk property damage insurance on, including theft
or attempted theft of, Tenant's personal property including
improvements or betterments for which Tenant is responsible
under this Lease. Such policies are to be written by
recognized and well-rated insurance companies authorized to
transact business in the State of New York. If at any time
during the Term it appears that public liability or property
damage limits in the City of New York for premises similarly
situated, due regard being given to the use and occupancy
thereof, are higher than the foregoing limits, then Tenant
shall increase the foregoing limits accordingly. Landlord,
Prime Landlord and their agents shall be named as additional
insureds in the aforesaid insurance policies and the policies
shall provide that Owner shall be afforded thirty days prior
notice of cancellation of said insurance. Tenant shall deliver
certificates of insurance evidencing such policies within
thirty (30) days prior to the date that such insurance is
required to become effective. Thereafter, Tenant shall deliver
to Owner either an original policy or certificate of insurance
at least thirty (30) days prior to the expiration of any such
policy, together with evidence of payment therefor and
including an endorsement which states that such insurance may
not be cancelled except upon thirty (30) days' written notice
to Owner and any designee(s) of Owner. All premiums and
charges for the aforesaid insurance shall be paid by Tenant and
if Tenant shall fail to make such payment when due, Landlord
may make it and the amount thereof shall be repaid to Landlord
by Tenant on demand and the amount thereof may, at the option
of Owner, be added to and become a part of the additional rent
payable hereunder. Tenant shall not violate or permit to be
violated any condition of any of said policies and Tenant shall
perform and satisfy the requirements of the companies writing
such policies. Tenant may provide the insurance required under
this paragraph pursuant to blanket policies that cover other
locations in addition to the demised premises, provided all the
conditions described in this paragraph are satisfied by such
blanket policies.
(B) Landlord and Tenant shall each endeavor to secure an
appropriate clause in, or an endorsement upon, each fire or
extended coverage policy obtained by it and covering the
demised premises or the personal property, fixtures and
equipment located therein or thereon, pursuant to which the
respective insurance companies waive subrogation or permit the
insured, prior to any loss, to agree with a third party to
waive any claim it might have against said third party. The
waiver of subrogation or permission for waiver of any claim
hereinbefore referred to shall extend to the agents of each
party and its partners and employees and, in the case of
Tenant, shall also extend to all other persons and entities
occupying or using the demised premises in accordance with the
terms of this Lease. If and to the extent that such waiver or
permission can be obtained only upon payment of an additional
charge, then the party benefiting from the waiver or permission
shall pay such charge upon demand, and if such party shall fail
or refuse to pay such charge within thirty (30) days of demand
therefor, such party shall be deemed to have agreed that the
party obtaining the insurance coverage in question shall be
free of any further obligations under the provisions hereof
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relating to such waiver or permission. In the event that
either Landlord or Tenant shall be unable at any time to obtain
one of the provisions referred to above in any of its insurance
policies, Landlord or Tenant, as the case may be, shall
promptly notify the other.
Insofar as a waiver of subrogation is obtained as provided
in the foregoing provisions of this Section 49B, and insofar as
may be permitted by the terms of the insurance policies carried
by it, each party hereby releases the other and its partners,
agents and employees (and in the case of Tenant, all other
persons and entities occupying or using the demised premises in
accordance with the terms of this Lease) with respect to any
claim (including a claim for negligence) which it might
otherwise have against the other party for loss, damages or
destruction with respect to its property by fire or other
casualty (including rental value or business interruption, as
the case may be) occurring during the Term to the extent of the
limits of coverage by such insurance policies.
50. BANKRUPTCY
Without limiting any of the provisions of Articles 16, 17
or 18 hereof, if pursuant to the Bankruptcy Code of 1978, as
the same may be amended, Tenant is permitted to assign this
Lease in disregard of the obligations contained in Articles 11
and 44 hereof, Tenant agrees that adequate assurance of future
performance by the assignee permitted under such Code shall
mean the deposit of cash security with Landlord in an amount
equal to the sum of one year's Fixed Rent then reserved
hereunder plus an amount equal to all additional rent payable
under this Lease for the calendar year preceding the year in
which such assignment is intended to become effective, which
deposit shall be held by Landlord, without interest, for the
balance of the Term as security for the full and faithful
performance of all of the obligations under this Lease on the
part of Tenant yet to be performed. If Tenant receives or is
to receive any valuable consideration for such an assignment of
this Lease, such consideration, after deducting therefrom (A)
the brokerage commissions, if any, and other expenses
reasonably incurred by Tenant for such assignment and (8) any
portion of such consideration reasonably designated by the
assignee as paid for the purchase of Tenant's property in the
demised premises, shall be and become the sole and exclusive
property of Landlord and shall be paid over to Landlord
directly by such assignee. In addition, adequate assurance
shall mean that any such assignee of this Lease shall have a
net worth, exclusive of good will, equal to at least fifteen
(15) times the aggregate of the Fixed Rent reserved hereunder
plus all additional rent for the preceding calendar year as
aforesaid.
51. LOCAL LAW 5
Supplementing Article 6,
(A) All work performed or installations made by Tenant (or
by Landlord at Tenant's request and expense) in and to the
demised premises shall be done in a fashion such that the
demised premises and the Building shall be in compliance with
the requirements of Local Law 5 of 1973 of The City of New
York, as heretofore and hereafter amended ("Local Law 5"). The
foregoing shall include, without limitation, (i) compliance
with the compartmentalization requirements of Local law 5, (ii)
relocation of existing fire detection devices, alarm signals
and/or communication devices necessitated by the alteration of
the demised premises, and (iii) installation of such additional
fire control or detection devices as may be required by
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applicable governmental or quasi-governmental rules,
regulations or requirements (including, without limitation, any
requirements of the New York Board of Fire Underwriters) as a
result of Tenant's manner of use of the demised premises.
(B) Landlord shall not be responsible for any damage to
Tenant's fire control or detection devices nor shall Landlord
have any responsibility for the maintenance or replacement
thereof. Tenant shall indemnify and hold Landlord harmless
from and against all loss, damage, cost, liability or expense
(including, without limitation, reasonable attorneys' fees and
disbursements) suffered or incurred by Landlord by reason of
the installation and/or operation of any such devices.
(C) All work and installations required to be undertaken
by Tenant pursuant to this Article shall be performed at
Tenant's sole cost and expense and in accordance with plans and
specifications and by contractors previously approved by
Landlord.
(D) The fact that Landlord shall have heretofore consented
to any installations or alterations made by Tenant in the
demised premises shall not relieve Tenant of its obligations
pursuant to this Article with respect to such installations or
alterations.
52. TENANT'S ALTERATIONS
Anything in this Lease to the contrary notwithstanding:
(A) Tenant shall not make or perform, or permit the making
or performance of, any alterations, installations,
improvements, additions or other physical changes in or about
the demised premises (collectively, "Alterations") without
Landlord's and Prime Landlord's prior consent which consent
shall be granted or withheld in the sole discretion of Landlord
and Prime Landlord respectively. With respect to any
Alterations relating to the Building's structure and/or
systems, Tenant shall only be permitted to utilize contractors
or mechanics approved by Prime Landlord in its sole
discretion. All other contractors are subject to Prime
Landlord's approval. Prior to the commencement of any
Alterations, Tenant shall submit to Landlord, for Landlord's
and Prime Landlord's written approval, plans and specifications
(to be prepared by and at the expense of Tenant) of such
proposed Alterations in detail satisfactory to Landlord and
Prime Landlord.
All Alterations shall be done at Tenant's sole expense
and at such times and in such manner as Landlord and Prime
Landlord may from time to time designate. In no event shall
any material or equipment be incorporated in or to the demised
premises in connection with any Alteration which is subject to
any lien, security agreement, charge, mortgage or other
encumbrance of any kind whatsoever or is subject to any
conditional sale or other similar or dissimilar title retention
agreement. Any mechanic's lien filed against the Premises or
the Building for work done for, or claimed to have been done
for, or materials furnished to, or claimed to have been
furnished to, Tenant shall be discharged by Tenant within
twenty (20) days after Tenant receives notice thereof, at
Tenant's expense, by filing the bond required by law or
otherwise. All Alterations shall at all times comply with (1)
laws, rules, orders and regulations of governmental authorities
have jurisdiction thereover, (2) rules and regulations of
Landlord and Prime Landlord those covering construction (as set
forth in Exhibit D) as well as those relating to the
day-to-day use of the demised premises (as set forth in Article
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61), and other such rules and regulations as may be promulgated
by Landlord or Prime Landlord from time to time, and (3) plans
and specifications prepared by and at the expense of Tenant
theretofore submitted to Landlord for Landlord's and Prime
Landlord's prior written approval. No Alteration shall be
undertaken, started or begun by Tenant or by its agents,
employees, contractors or anyone else acting for or on behalf
of Tenant until Landlord and Prime Landlord has approved such
plans and specifications.
Prior to making any Alterations, Tenant shall (i)
furnish to Landlord duplicate original policies of worker's
compensation insurance (covering all persons to be employed by
Tenant, and Tenant's contractors and subcontractors in
connection with such Alteration) and comprehensive public
liability (including property damage coverage) insurance in
such form, with such companies, for such periods and in such
amounts as Landlord may require, naming Prime Landlord,
Landlord and their agents as additional insureds, (ii) deliver
certified or duplicate original copies of all contracts
relating to the Alterations and (iii) if the Alteration
involves any structural alteration or exceeds $25,000 in cost,
provide Landlord with a payment and performance bond in form,
and from a surety, acceptable to Landlord, for the entire
Alteration. Upon completion of such Alteration, Tenant, at
Tenant's expense, shall obtain certificates of final approval
of such Alteration required by any governmental or
quasi-governmental bodies and shall furnish Landlord and Prime
Landlord with copies thereof. Tenant shall not, at any time
prior to or during the Term, directly or indirectly employ, or
permit the employment of, any contractor, mechanic or laborer
in the demised premises, whether in connection with any
Alteration or otherwise, if, in Landlord's sole discretion,
such employment will interfere or cause any conflict with other
contractors, mechanics, or laborers engaged in the
construction, maintenance or operation of the Building by
Landlord, Tenant or others. In the event of any such
interference or conflict, Tenant, upon demand of Landlord,
shall cause all contractors, mechanics or laborers causing such
interference or conflict to leave the Building immediately.
(B) No approval of any plans or specifications by Landlord
or consent by Landlord allowing Tenant to make any Alterations
or any inspection of Alterations made by or for Landlord shall
in any way be deemed to be an agreement by Landlord that the
contemplated Alterations comply with any legal requirements or
insurance requirements or the certificate of occupancy for the
Building nor shall it be deemed to be a waiver by Landlord of
the compliance by Tenant of any provision of this Lease.
(C) Tenant shall promptly reimburse Landlord for all fees,
costs and expenses including, but not limited to, those of
Prime Landlord, attorneys, architects and engineers, incurred
by Landlord in connection with inspecting the Alterations to
determine whether the same are being or have been performed in
accordance with the approved plans and specifications therefore
and with all legal requirements and insurance requirements.
53. ESTOPPEL CERTIFICATE
Either party, at any time, and from time to time, upon
demand from the other, shall execute, acknowledge and deliver
to the party so demanding and/or to any other person, firm or
corporation specified by the party so demanding ("Recipient"),
a statement certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications,
that the same is in full force and effect modified and stating
the modifications), stating the dates to which the Fixed Rent
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and additional rent have been paid, stating whether or not
there exists any defaults by the party executing the statement
under this Lease, and, if so, specifying each such default and
any other matters reasonably requested by the party demanding
the statement or the Recipient,
54. HOLDOVER
In the event Tenant shall hold over after the expiration or
earlier termination of the Term, the parties hereby agree that
Tenant's occupancy of the demised premises after the expiration
or earlier termination of the Term shall be upon all of the
terms set forth in this Lease except Tenant shall pay as rent
for the holdover period an amount equal to the higher of (A) an
amount equal to two times the sum of (1) the pro rata Fixed
Rent payable by Tenant during the last year of the Term and (2)
all additional rent payable by Tenant pursuant to the terms of
this Lease that would have been billable by Landlord had the
Term not expired; or (B) an amount equal to the then market
rental value for the demised premises as shall be established
by Landlord giving notice to Tenant of Landlord's good faith
estimate of such market rental value.
55. CONDITIONAL LIMITATION
In the event that twice in any twelve (12) month period (A)
a default of the kind set forth in Section 17(1) shall have
occurred or (B) Tenant shall have failed to pay Fixed Rent or
additional rent, or any part of either then, for a period of
ten (10) days from the date due, notwithstanding that such
defaults may have been cured, any further default by Tenant
within such twelve (12) month period shall be deemed to be a
violation of a substantial obligation of this Lease by Tenant
and Landlord may serve a written three (3) days' notice of
cancellation of this Lease upon Tenant and, upon the expiration
of said three (3) days, this Lease and the Term shall end and
expire as fully and completely as if the expiration of such
three (3) day period were the day herein definitely fixed for
the end and expiration of this Lease and the Term and Tenant
shall then quit and surrender the demised premises to Landlord,
but Tenant shall remain liable as elsewhere provided in this
Lease.
56. LIMITATION ON RENT
If on the Commencement Date, or at any time during the
Term, the Fixed Rent or additional rent reserved in this Lease
is not fully collectible by reason of any Federal, State,
County or City law, proclamation, order or regulation, or
direction of as public officer or body pursuant to law
(collectively, "Law"), Tenant agrees to take such steps as
Landlord may request to permit Landlord to collect the maximum
rents which may be legally permissible from time to time during
the continuance of such legal rent restriction (but not in
excess of the amounts reserved therefor under this Lease).
Upon the termination of such legal rent restriction, Tenant
shall pay to Landlord, to the extent permitted by Law, an
amount equal to (A) the Fixed Rent and additional rent which
would have been paid pursuant to this Lease but for such legal
rent restriction, less (B) the Fixed Rent and additional rent
paid by Tenant to Landlord during the period such legal rent
restriction was in effect,
57. INTENTIONALLY OMITTED
58. DEFINITIONS OF "LANDLORD" AND "OWNER"
The terms "Owner" and "Landlord", whenever used in this
Lease (including, without limitation, in Article 31), shall
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have the same meaning. Notwithstanding anything in Article 31
to the contrary, if Landlord shall assign its interest in the
Prime Lease prior to completion of Landlord's Initial
Installation (as defined below), then Landlord shall not be
released from the obligation to complete Landlord's Initial
Installation.
59. INDEMNIFICATION
Tenant shall indemnify Landlord and Prime Landlord, and
their respective employees, agents, contractors, licensees and
invitees against and save them harmless from any liability,
cost or expense, including any such indemnified party's
reasonable attorney's fees, in connection with any and all
claims made on behalf of or by any person, firm or corporation
for personal injury or death or property damage or other claims
for damages of any kind arising from (i) the use or manner of
the demised premises by Tenant; its employees, agents, invitees
and licensees hereunder, (ii) from any breach or default by
Tenant of any of the terms, covenants and conditions of this
Lease, (iii) any acts, omissions or negligence of Tenant or any
person claiming through Tenant, or the employees, agents,
contractors, licensees or invitees of Tenant or any such
person, in or about the demised premises or the Building either
prior to, during or after termination of this Lease, or (iv)
the condition of the demised premises. If any action or
proceeding shall be brought against any party indemnified
hereunder by reason of any such claim, Tenant, upon notice from
any such indemnified party, shall resist and defend such action
or proceeding and employ counsel satisfactory to such
indemnified party, as the case may be. Tenant shall pay to
Landlord within ten (10) days after demand all sums which may
be owing to any indemnified party by reason of this Article
59. Tenant's obligations under this paragraph shall survive
the Expiration Date or earlier termination of this Lease.
60. NOTICES
Any notice required or desired to be given to any party
hereto shall be given by hand delivery or certified mail,
return receipt requested, and be addressed to the parties
hereto at their addresses as set forth above herein or to such
other address as any party may designate by written notice.
Any notice to Sublessor shall be addressed to Landlord
Diamandis Communication's Inc., 1633 Broadway, New York, New
York 10019 to the Attention of David J. Pecker, Vice
President/Controller with a copy to Jones, Day, Reavis & Pogue
599 Lexington Avenue, New York, New York 10022 (Attention: John
J. Hyland, Esq.).
61. RULES AND REGULATIONS
The following rules and regulations are made a part of this
Lease in accordance with the provisions of Article 33:
(A) The sidewalks, driveways, entrances, passages,
courts, lobbies, esplanade areas, plazas, elevators,
vestibules, stairways, corridors or halls shall not be
obstructed or encumbered by any tenant or used for any purpose
other than ingress and egress to and from the demised premises
and no tenant shall permit any of its employees, agents or
invitees to congregate in any of said areas. No doormat of any
kind whatsoever shall be placed or left in any public hall or
outside any entry door of the demised premises.
(B) No awnings or other projections shall be attached
to the outside walls of the Building, No curtains, blinds,
shades or screens shall be attached to or hung in, or used in
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connection with any window or door of the demised premises,
without the prior written consent of Prime Landlord. Such
curtains, blinds, shades or screens must be of a quality, type,
design and color, and attached in the manner approved by Prime
Landlord.
(C) No sign, insignia, advertisement, lettering,
notice or other object shall be exhibited, inscribed, painted
or affixed by any tenant on any part of the outside or inside
of the demised premises or the Building without the prior
written consent of Prime Landlord. In the event of the
violation of the foregoing by any tenant, Prime Landlord may
remove the same without any liability, and may charge the
expense incurred in such removal to the tenant or tenants
violating this rule. Interior signs, and lettering on doors
and the Building directory shall, if and when approved by Prime
Landlord, be inscribed, painted or affixed for each tenant by
Prime Landlord at the expense of such tenant, and shall be of
size, color and style acceptable to Prime Landlord.
(D) The sashes, sash doors, skylights, windows and
doors that reflect or admit light and air into the halls,
passageways or other public places in the Building shall not be
covered or obstructed by any tenant, nor shall any bottles,
parcels, or other articles be placed in a manner that would
obstruct air flow from the peripheral air conditioning
enclosures.
(E) No showcases or other articles shall be out in
front of or affixed to any part of the exterior of the
Building, nor placed in the halls, corridors or vestibules,
except as may be approved by Prime Landlord.
(F) The water and wash closets and other plumbing
fixtures shall not be used for any purposes other than those
for which they were designed or constructed, and no sweepings,
rubbish, rags, acids or other substances shall be thrown or
deposited therein. All damages resulting from any misuse of
the fixtures shall be borne by the tenant who, or whose
servants, employees, agents, visitors or licensees shall have,
caused the same. Any cuspidors or containers or receptacles
used as such in the demised premises, or for garbage or similar
refuse, shall be emptied, cared for and cleaned by and at the
expense of Tenant.
(G) No tenant shall mark, paint, drill into, or in
any way deface, any part of the demised premises or the
Building and no boring, cutting or stringing of wires shall be
permitted, except with the prior written consent of Prime
Landlord and as Prime Landlord may direct.
(H) No bicycles, fish or birds of any kind shall be
brought into (except on the freight elevator) or kept in or
about the demised premises and no vehicles or animals of any
kind shall be brought into the demised premises.
(I) No noise, including, but not limited to, music or
the playing of musical instruments, recordings, radio or
television which might disturb other tenants of the Building,
shall be made or permitted by any tenant. Nothing shall be
done or permitted in the demised premises by any tenant which
would impair or interfere with the use of enjoyment by any
other tenant of any other space in the Building.
(J) No tenant, nor any tenant's servants, employees,
agents, visitors or licensees, shall at any time bring or keep
upon the demised premises any inflammable, combustible or
explosive fluid, chemical or substance.
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(K) Additional locks or bolts of any kind which shall
not be operable by the Grand Master Key for the Building shall
not be placed upon any of the doors or windows by any tenant,
nor shall any changes be made in locks or the mechanism thereof
which shall make such locks inoperable by said Grand Master
Key. Each tenant shall, upon the termination of its tenancy,
turn over to Landlord all keys of stores, offices and toilet
rooms, either furnished to, or otherwise procured by, such
tenant, and in the event of the loss of any keys furnished by
Landlord or Prime Landlord, Tenant shall pay to Landlord or
Prime Landlord the cost thereof (as applicable).
(L) All removals, or the carrying in or out of any
safes, freight, furniture, packages, boxes, crates or any other
object or matter of any description must take place during such
hours and in such elevators as Prime Landlord may reasonably
determine from time to time. Prime Landlord reserves the right
to inspect all objects and matter to be brought into the
Building and to exclude from the Building all objects and
matter which violate any of these Rules and Regulations or the
Lease of which these Rules and Regulations are a part. Prime
Landlord may require any person leaving the Building with any
package or other object or matter to submit a pass, listing
such package or object or matter, from the tenant from whose
premises the package or object or matter is being removed, but
the establishment and enforcement of such requirement shall not
impose any responsibility on Prime Landlord for the protection
of any tenant against the removal of property from the premises
of such tenant. Landlord and Prime Landlord shall in no way be
liable to any tenant for damages or loss arising from the
admission, exclusion or ejection of any person to or from its
demised premises or the Building under the provisions of this
subsection or of subsection (P) hereof.
(M) No tenant shall occupy or permit any portion of
the demised premises to be occupied as an office for a public
stenographer or public typist, or for the possession, storage,
manufacture, or sale of liquor, narcotics, dope, tobacco in any
form, or as a barber, beauty or manicure shop, or as a school,
or as a hiring or employment agency. No tenant shall engage or
pay any employee on the demised premises, except those actually
working for tenant on the demised premises nor advertise for
laborers giving an address at the demised premises.
(N) No tenant shall obtain, purchase or accept for
use in the demised premises ice, drinking water, food, coffee
cart, beverage, towel, barbering, bootblacking, cleaning, floor
polishing or other similar services from any persons not
authorized by Prime Landlord in writing to furnish such
services. Such services shall be furnished only at such hours,
in such places within the demised premises, and under such
regulations, as may be reasonably fixed by Prime Landlord. It
is expressly understood that Landlord and Prime Landlord assume
no responsibility for the acts, omissions, misconduct or other
activities of the purveyors of such services.
(O) Prime Landlord shall have the right to prohibit
any advertising or identifying sign by any tenant which, in
Prime Landlord's judgment, tends to impair the reputation of
the Building or its desirability as a building for offices, and
upon written notice from Prime Landlord, such tenant shall
refrain from and discontinue such advertising or identifying
sign.
(P) Prime Landlord reserves the right to exclude from
the Building during hours other than 8:00 a.m. to 6:00 p.m.
Monday through Friday (excluding holidays) all persons
connected with or calling upon a tenant who do not present a
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<PAGE>
pass to the Building signed by such tenant. Tenant shall
furnish Prime Landlord with a facsimile of such pass. All
persons entering and/or leaving the Building during hours other
than Business Hours may be required to sign a register. Tenant
shall be responsible for all persons to whom it issues any such
pass and shall be liable to Landlord and Prime Landlord for all
acts or omissions of such persons.
(Q) All entrance doors in the demised premises shall
be left locked by Tenant when the demised premises are not in
use. Entrance doors shall not be left open at any time if the
same would violate any applicable governmental or
quasi-governmental law, rule or regulation.
(R) Tenant shall provide artificial light and
electric energy for the employees of Prime Landlord and/or
Prime Landlord's contractors while doing janitor service or
other cleaning in the demised premises and while making repairs
or alterations in the demised premises.
(S) The demised premises shall not be used for
lodging or sleeping or for any immoral or illegal purpose.
(T) The requirements of tenants will be attended to
only upon application at the office of the Building. Employees
of Landlord and Prime Landlord shall not perform any work or do
anything outside of their regular duties.
(U) Canvassing, soliciting and peddling in the
Building are prohibited and each tenant shall cooperate to
prevent the same.
(V) There shall not be used in any space, or in the
public halls of the Building, either by any tenant or by any
others, in the moving or delivery or receipt of safes, freight,
furniture, packages, boxes, crates, paper, office material, or
any other matter or thing, any hand trucks except those
equipped with rubber tires, side guards and such other
safeguards as Prime Landlord shall require.
(W) Tenant shall not cause or permit any odors of
cooking or other processes or any unusual or objectionable
odors to emanate from the demised premises which would annoy
other tenants or create a public or private nuisance. No
cooking shall be done in the demised premises.
62. PREPARATION FOR OCCUPANCY AND POSSESSION
(A) With reasonable promptness after the execution
and delivery of this Lease, Landlord agrees to construct the
demised premises substantially in accordance with the layout
plan and schedule of materials attached hereto as Exhibit E
("Landlord's Initial Installation").
(B) For purposes of this Lease, the demised premises
shall be deemed substantially completed ("Substantial
Completion" or "Substantially Completed") on the date when the
Landlord's Initial Installation has been substantially
completed in accordance with the Final Plans (as defined in
Exhibit E) and Landlord notifies Tenant thereof,
notwithstanding the fact that insubstantial details of
construction, mechanical adjustment or decoration remain to be
completed.
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<PAGE>
(C) If Substantial Completion is delayed by reason of
any Tenant Delay (as defined in Exhibit E) the demised premises
shall be deemed Substantially Completed for the purposes of the
Commencement Date as of the date when they would have been
Substantially Completed but for any such Tenant Delay as
determined by Landlord in its reasonable discretion whether or
not any such Tenant Delay could have been avoided by the
commitment by Landlord of additional or overtime personnel to
the performance of Landlord's Initial Installation. In
addition, Tenant shall, promptly upon demand, reimburse
Landlord for all damages and additional costs and charges of
whatever nature resulting from such delays.
63. COMMENCEMENT AND EXPIRATION DATES
The "Commencement Date shall be the earlier of (A) the
day on which Landlord's Initial Installation is or is deemed to be
Substantially Completed, of which date Landlord shall give Tenant
seven (7) days' prior written tice or (B) the day Tenant (or
anyone claiming under or through Tenant) occupies or takes
possession of the demised premises for the conduct of its business
(excluding Tenant's occupancy of the Temporary Space, as defined
in Article 67). The "Expiration Date" shall be the last day of
the month in which the fifth (5th) anniversary of the Commencement
Date shall lie. Upon the Substantial Completion of Landlord's
Initial Installation, the parties shall execute, acknowledge and
exchange an agreement specifying the Commencement Date and the
Expiration Date, provided that the failure to execute, acknowledge
or exchange such agreement shall no way affect or delay Tenant's
obligations under this Lease.
64. INTENTIONALLY OMITTED
65. TELEPHONE SERVICES
(A) Unless otherwise notified by Tenant, on the
Commencement Date, Tenant will lease up to ten (10) telephones
from Landlord in accordance with Schedule F for Tenant's use
during the Term subject to the terms and provisions of this
Article 65; provided however, that during the Term, Landlord
shall furnish such additional telephones (as described on Schedule
F) as Tenant shall request (the aggregate of all telephones leased
by Tenant from Landlord is hereinafter referred to as the "Leased
Phones"). Such telephone service will be furnished to the demised
premises through wiring and equipment installed by Landlord as
part of Landlord's Initial Installation.
(B) Any expansion, rearrangement, addition or other
alteration to the telephone service or equipment serving the
demised premises (collectively, the "Phone System") requested by
Tenant or necessitated by Tenant's use of the Phone System and any
work necessary for the maintenance, repair and operation of the
Phone System shall be performed by Landlord or its agent or
contractor and Tenant shall reimburse Landlord for all of
Landlord's charges in connection therewith within five (5) days
after delivery of a bill therefor. Tenant shall not make or
perform, or permit the making or performing of, any expansion,
rearrangement, addition or other alteration to the Phone System
without the prior written consent of Landlord in each instance.
(C) From and after the Commencement Date, Tenant shall
pay Landlord as additional rent, within five (5) days after
delivery of a bill therefor, the following charges for Tenant's
use of the Phone System:
(i) $30.00 per month for each telephone number operating
out of the demised premises; plus
(ii) 105% of the charges for Tenant's actual usage of the
Phone System; plus
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<PAGE>
(iii) monthly equipment charges for the Leased Phones
in accordance with the rate schedule attached
hereto as Exhibit F; providing, however, that if
Tenant purchases its own telephone equipment
during the Term, Tenant shall purchase the Leased
Phones from Landlord for the price at which
Landlord purchased the Leased Phones, but if
Tenant leases telephone equipment from a third
party during the Term, Tenant must continue to
lease the Leased Phones from Landlord during the
Term on the terms and conditions set forth
herein; plus
(iv) an amount equal to any taxes imposed upon
Landlord in connection with the furnishing of
telephone service and equipment to Tenant by any
Federal, State or Local Government subdivision or
authority, if permitted by law.
66. TENANT'S EXTENSION OPTION
Provided this Lease shall be in full force and effect and
Tenant shall not be in default hereunder beyond any applicable
notice and grace period, Tenant shall have the option to extend
the Term for a single three (3) year period (the "Extension
Term"). The Extension Term shall commence on the date
following the Expiration Date and end on the third (3rd)
anniversary of the Expiration Date (the "Extended Expiration
Date") unless the Extension Term shall sooner cease and expire
as provided in this Lease. Tenant shall give Landlord written
notice of Tenant's intention to exercise such option no later
than one (1) year before the Expiration Date, time being of the
essence with respect to Tenant's notice. Upon the giving of
Tenant's notice, this Lease and the Term shall be extended,
without execution of any other or further document, with the
same force and effect as if the Extension Term had originally
been included in the Term and the Extended Expiration Date
shall be deemed to be the Expiration Date. All of the terms,
covenants and conditions of the Lease shall continue in full
force and effect during the Extension Term including items of
additional rent and escalation which shall remain payable on
the terms set forth in this Lease, except that: (a) in no
event shall Tenant have the right to extend the Term beyond the
Extended Expiration Date; (b) there shall be no rent abatement
or installation obligations whatsoever on Landlord's part; (c)
the Fixed Rent shall be payable at a rate of $343,330 per
annum; (d) the charge payable pursuant to Section 65(C)(i)
shall be increased to $33.00 per month for each telephone
number operating out of the demised premises; and (e) Exhibit F
shall be deleted and the monthly equipment charges payable
pursuant to Section 65(C)(iii) shall be in accordance with the
rate schedule attached hereto as Exhibit G. In the event
Tenant fails to timely exercise the option set forth in this
Article 66, Tenant shall be deemed to have waived its rights
under this Article 66 and Tenant shall have no further or other
right to extend the Term.
67. TEMPORARY SPACE
(A) From and after the date hereof through the
Commencement Date, Landlord agrees to grant Tenant a license to
use the conference room adjacent to the elevator lobby on the
forty-fifth (45th) floor of the Building (the "Temporary
Space") for the sole purpose of conducting Tenant's business
during the preparation of the demised premises for Tenant's
occupancy and use. Upon three (3) days' notice to Tenant
(which notice need not be in writing) Landlord shall have the
right to relocate Tenant to a portion of the demised premises
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<PAGE>
to be designated by agreement between Landlord and Tenant;
after such relocation such portion of the demised premises
shall be deemed to be the Temporary Space.
(B) Landlord makes no representation as to the
condition of the Temporary Space; Tenant shall take the
Temporary Space "as is" on the date hereof and Landlord shall
not be required to perform any work to prepare the Temporary
Space for Tenant's occupancy.
(C) In consideration of Landlord's agreement to grant
the license pursuant to this Article 67, Tenant agrees to pay
Landlord: (i) a fee of Three Thousand ($3,000) Dollars payable
upon the execution and delivery of this Lease; plus (ii) for so
long as the Temporary Space is located on the 45th floor of the
Building, 105% of the charges for Tenant's actual usage of
telephone service in the Temporary Space; plus (iii) after the
Temporary Space is relocated to the demised premises, all
charges for Tenant's use of that portion of the Phone System
located in the Temporary Space, as set forth in Section
65(c)(i)-(iv), and all amounts charged by Prime Landlord to
Landlord for Building services in respect of the Temporary
Space, as set forth in Section 40(B).
(D) Tenant's use and occupancy of the Temporary Space
shall in all respects be in accordance with and subject to the
provisions of this Lease applicable to Tenant's use and
occupancy of the demised premises and the Building including,
without limitation, Articles 2, 37, 38, 40, 43, 44 and 46
(E) Nothing contained in this Article 67 shall be
construed to create the relationship of landlord and tenant
between Landlord and Tenant.
(F) The license created pursuant to this Article 67
shall terminate on the earlier of (i) the Commencement Date or
(ii) the date of the expiration or termination of this Lease
for any reason, and upon such termination Tenant shall
surrender the Temporary Space to Landlord in broom clean and
vacant condition (unless the Commencement Date shall have
occurred and the Temporary Space is then located within the
demised premises). Anything in this Article 67 to the contrary
notwithstanding, if Tenant fails to vacate the Temporary Space
upon the termination of this license (unless the Commencement
Date shall have occurred and the Temporary Space is then
located within the demised premises) Landlord shall have the
right to recover possession of the Temporary Space pursuant to
Section 713 of the Real Property Actions and Proceedings Law
and, in addition, to pursue any other remedies available to
Landlord at law or in equity. Except as provided in this
Article 67, Tenant shall have no right to enter or occupy the
Building or the demised premises until the Commencement Date.
Landlord agrees that Tenant's occupancy of the Temporary Space
shall not be or be deemed to be occupancy or taking possession
of the demised premises for the conduct of Tenant's business
for the purposes of defining the Commencement Date in
accordance with Article 63, but only if and for so long as
Tenant's occupancy is limited exclusively to the Temporary
Space.
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<PAGE>
68. TENANT'S TERMINATION OPTION
Anything contained in this Lease to the contrary
notwithstanding, Tenant shall have the option to terminate this
Lease effective at any time on or after the third (3rd)
anniversary of the Commencement Date (the "Termination Date"),
subject to the provisions of this Article 68. Tenant shall
give Landlord written notice of Tenant's intention to exercise
the option to so terminate this Lease no later than one (1)
year before the Termination Date, time being of the essence
with respect to Tenant's notice. Provided such notice is
timely given and further provided that on or before the
Termination Date Tenant has paid to Landlord, by unendorsed
certified or bank check or by wire transfer into an account
designated by Landlord, the sum of one hundred thousand
($100,000) dollars plus all amounts of Fixed Rent and
additional rent payable as of the Termination Date, then on tI.
Termination Date this Lease shall automatically end and expire
as fully as if the Termination Date were the Expiration Date.
In the event (a) Tenant fails to timely give the notice set
forth in this Article 68 or (b) Tenant has timely given the
notice set forth in this Article 68 but fails to pay Landlord
any of the amounts set forth in the preceding sentence in the
manner set forth in the preceding sentence, Tenant shall be
deemed to have waived its rights under this Article 68 and
Tenant shall have no further or other right to terminate this
Lease. Anything contained in this Article 68 to the contrary
notwithstanding, Landlord's failure to bill all or any portion
of any amount payable pursuant to the Lease by the Termination
Date shall not constitute a waiver of Landlord's right to
ultimately collect such amount or to bill Tenant at anytime
after the Termination Date retroactively for the entire amount
unbilled.
69. MEASUREMENT OF DEMISED PREMISES
Landlord and Tenant, having made due investigations to
their mutual satisfaction, agree that for the purposes of this
Lease only, the demised premises consists of 9,880 rentable
square feet; Landlord makes no representation whatsoever with
respect to the accuracy of the foregoing figure.
70. LISTINGS IN BUILDING DIRECTORY
Tenant shall be entitled and Landlord shall request
Prime Landlord to provide to a percentage of the listings in
the Building directory allotted to Landlord pursuant to Section
39.02 of the Prime Lease, in the same proportion that the
rentable square footage of demised premises bears to that of
Landlord's premises under the Prime Lease.
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Exhibit 10.14
TAX ALLOCATION AND INDEMNITY AGREEMENT
Agreement dated June __, 1996, by and among, on the one hand,
Parent Group, consisting of Capital Bancorp, a Florida corporation ("Parent"),
Capital Bank and the other direct and indirect wholly owned subsidiaries of
Parent other than Capital Factors Holding, Inc., a Florida corporation ("Factors
Holding"), and its direct and indirect wholly owned subsidiaries ("Factors
Group"), and, on the other hand, Factors Group.
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group
(the "Affiliated Group") as defined in section 1504(a) of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, an affiliated group as defined in Code section 1504(a)
of which Parent is the common parent has filed consolidated Federal income tax
returns for prior taxable years, and the Affiliated Group will be required to
file a consolidated Federal income tax return for its taxable year ending
December 31, 1995 and for subsequent taxable years; and
WHEREAS, prior to June __, 1996, Factors Holding was an indirect
wholly owned subsidiary of Parent but as of that date acquired new shareholders
unrelated to members of the Affiliated Group; and
WHEREAS, it is the intent of the parties hereto that an agreement
be entered into (i) to allocate the consolidated Federal income tax liability of
the Affiliated Group between the Parent Group and the Factors Group pursuant to
a method specified in regulations of the Treasury Department that would impose
on Parent Group and Factors Group, for the period beginning January 1, 1995
through December 31, 1995 and for subsequent periods, liability for an amount
that approximates the liability that Parent Group and Factors Group each would
incur if they filed Federal income tax returns as separate affiliated groups as
defined in Code section 1504(a) and (ii) to provide that Parent Group and
Factors Group each shall bear its appropriate portion of the liability of the
Affiliated Group for consolidated Federal income tax in respect of prior
periods.
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto agree as follows:
1. FILING OF CONSOLIDATED RETURNS. A consolidated Federal income
tax return shall be filed by Parent for the taxable year ending December 31,
1995, and for each subsequent taxable period in respect of which this Agreement
is in effect and for which the Affiliated Group is required or permitted to file
a consolidated Federal income tax return.
<PAGE>
2. CURRENT AND FUTURE TAXABLE PERIODS. For the taxable year of
the Affiliated Group ending December 31, 1995 and for each taxable period
thereafter, the Affiliated Group shall be divided into two separate groups, one
consisting of Parent Group and the other consisting of Factors Group. The
consolidated Federal income tax liability of the Affiliated Group shall be
allocated between the two groups in accordance with the method set forth in
Treasury regulation sections 1.1552-1(a)(2) and 1.1502-33(d)(3) (using a fixed
percentage of 100%) by considering each group as a separate affiliated group,
except that (i) modifications to the separate taxable income will be made in
accordance with Treasury regulation section 1.1552-1(a)(2)(ii)(A) through (I) in
the same manner as if all corporations were members of a single affiliated
group, (ii) (a) carryforwards of losses and credits shall not be taken into
account to the extent those items are deemed absorbed in allocating the tax
liability of the Affiliated Group for prior taxable years, and (b) carrybacks of
losses and credits shall be taken into account only to the extent those items
are deemed absorbed in allocating the tax liability of the Affiliated Group for
the taxable year. The corporate surtax exemption shall be allocated equally
among all members of the Affiliated Group. Any liability of the Affiliated Group
for alternative minimum tax, environmental tax or any other Federal income tax
imposed on the Affiliated Group on a consolidated basis by any section of the
Code other than Code section 11 shall be allocated in accordance with any
reasonable method that is consistent with the principles of this Agreement and
the provisions of any governing Treasury regulations or other administrative
pronouncements of the Internal Revenue Service. In no event shall the Factors
Group pay more income tax in any period of one or more taxable years than the
Factors Group would have paid for the same period if it had filed a separate
consolidated Federal income tax return, and any taxes not paid by reason of this
limitation shall be paid by Parent Group.
3. PAYMENTS. Factors Group shall pay to Parent installments of
estimated tax, computed pursuant to the principles set forth in section 2 above,
no later than ten days after the due dates for payments of estimated tax by the
Affiliated Group. Any payments of estimated tax by Factors Group to Parent shall
be taken into account in determining the payment due from Factors Group pursuant
to section 2, and any overpayment of estimated tax shall be refunded to Factors
Group. A refund or payment of tax, calculated on the basis of the amount of tax
payable for the taxable year as calculated by Parent as of the due date (without
regard to extensions) for the Federal income tax return of the Affiliated Group,
shall be paid within ten days of that due date, and any adjustment to the amount
of refund or payment of tax, calculated on the basis of the amount of tax
payable for that taxable year as shown on the Federal income tax return of the
Affiliated Group as of the due date (with regard to extensions), shall be paid
within ten days of that due date.
4. PRIOR TAXABLE PERIODS. For the taxable year of the Affiliated
Group ending December 31, 1994 and for each taxable period prior thereto to
which the Tax Allocation Agreement of the Affiliated Group made November 14,
1983 (the "Prior Agreement") applies, the Federal income tax liability of the
Affiliated Group shall be allocated among the members of the Affiliated Group in
accordance with the Prior Agreement. For purposes of other portions of this
Agreement, references to Parent Group
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<PAGE>
or Factors Group shall be treated, in respect of taxable periods to which the
Prior Agreement applies, as references to the members of the Affiliated Group
that are members of Parent Group or Factors Group.
5. ADJUSTMENTS TO TAX LIABILITY. If the consolidated Federal
income tax liability of the Affiliated Group is adjusted for any taxable period,
whether by means of an amended return or claim for refund or after an audit by
the Internal Revenue Service, the Federal income tax liability of Factors Group
pursuant to section 2 or section 4 of this Agreement shall be recomputed, if
necessary, to give effect to those adjustments as if they had been part of the
original computation pursuant to section 2 or section 4. The obligation to make
any payment of additional Federal income tax or the right to receive any refund
of Federal income tax shall be allocated between Parent Group and Factors Group
accordingly. Any additional tax that Factors Group is obligated to pay shall be
paid to Parent, and any refund of tax to which Factors Group is entitled to
receive shall be paid by Parent, within ten days of, respectively, the date
Factors Group receives notice from Parent or the date Parent receives the refund
from the Treasury Department.
6. APPOINTMENT OF PARENT AS AGENT. Parent shall prepare and file
the consolidated Federal income tax returns of the Affiliated Group and any
other returns, documents or statements required to be filed with the Internal
Revenue Service. In its sole discretion, Parent shall have the right in
connection with any of those returns, documents or statements to determine (i)
the manner in which the return, document or statement shall be prepared and
filed, including, without limitation, the manner in which any item of income,
gain, loss, deduction, credit or any other item shall be reported, (ii) whether
any extension shall be requested and (iii) the elections that will be made by
the Affiliated Group or any members thereof. Each member of the Affiliated Group
shall execute and file those consents, elections, appointments, powers of
attorney and other documents that Parent determines may be necessary or
appropriate for the proper filing of those returns, documents or statements.
Each member of the Affiliated Group shall provide Parent or any other member of
the Affiliated Group any data necessary for the proper and timely filing of
returns, documents or statements and otherwise shall cooperate as necessary to
carry out the purposes of this Agreement.
7. NEW MEMBERS. If during any taxable period Parent or any other
member of the Affiliated Group acquires or organizes another corporation that is
required to be included in the consolidated Federal income tax return of the
Affiliated Group, that corporation shall join in and be bound by this Agreement.
8. INDEMNIFICATION
a. GENERAL PRINCIPLES. It is the intent of this Agreement
that Parent Group and Factors Group each be liable for an amount in respect of
Federal income tax of the Affiliated Group as that amount is determined pursuant
to this Agreement or the Prior Agreement and that Parent Group and Factors Group
each receive its respective
3
<PAGE>
share, as so allocated, of any reduction in Federal income tax liability of
the Affiliated Group.
b. INDEMNIFICATION. The members of Parent Group, jointly
and severally, shall be responsible for, and shall protect, defend, indemnify
and hold harmless the members of Factors Group from, any amount in respect of
Federal income tax allocable to Parent Group pursuant to this Agreement or the
Prior Agreement. The members of Factors Group, jointly and severally, shall be
responsible for, and shall protect, defend, indemnify and hold harmless the
members of Parent Group from, any amount in respect of Federal income tax
allocable to Factors Group pursuant to this Agreement or the Prior Agreement.
9. RETENTION OF BOOKS AND RECORDS. No member of the Affiliated
Group shall destroy or permit the destruction of any books, records or files
pertaining to any other member of the Affiliated Group without first having
offered in writing to deliver those books, records and files to the other
member, and the other member shall have the right upon prior notice to inspect
and to copy the same at any time during business hours for any proper purpose.
10. ALLOCATION OF TAX LIABILITY WITHIN GROUPS.
a. CALCULATION OF SEPARATE TAX LIABILITIES. The tax
liability allocated to Parent Group and Factors Group pursuant to section 2
shall be allocated further among the members of each of those groups in
accordance with the method set forth in Treasury regulation sections
1.1552-1(a)(2) and 1.1502-33(d)(3) (using a fixed percentage of 100%), PROVIDED,
HOWEVER, that in no event shall Capital Bank pay more income tax in any period
of one or more taxable years than Capital Bank would have paid for the same
period if it had filed a separate consolidated Federal income tax return, and
any taxes not paid by reason of this limitation shall be paid by the other
members of Parent Group.
b. PAYMENTS AND ADJUSTMENTS. The provisions of sections 3
and 5 hereof shall apply in respect of payments and adjustments of the Federal
income tax liability within Parent Group and Factors Group.
11. OTHER INCOME AND FRANCHISE TAXES. The liability of Parent
Group and of Factors Group in respect of state, local and foreign income and
franchise taxes that are computed pursuant to provisions applicable to
affiliated, combined, unitary or other groups shall be determined and paid in a
manner consistent with the provisions of this Agreement used to determine the
liability of Parent Group and of Factors Group in respect of Federal income tax.
Calculation of the separate liability of Parent Group and of Factors Group for
these other taxes shall conform to the appropriate state, local and foreign
income and franchise tax provisions governing affiliated, combined, unitary or
other groups. Notwithstanding the foregoing, (i) the credit against Florida
corporate income tax for Florida intangible tax shall not be computed on a
separate company basis to the extent a
4
<PAGE>
computation on that basis would disentitle any member of the Affiliated Group to
a credit that is available to that member by reason of joining in the filing of
a consolidated return of Florida corporate income tax with any member of the
Affiliated Group that is a bank, and (ii) no member of the Affiliated Group
("First Member") shall be required to make any payment to any other member of
the Affiliated Group ("Second Member") in respect of any tax imposed by the
State of California on a unitary basis solely because the liability of the First
Member for that tax is reduced by the Second Member joining in the filing of the
return when the activities of the Second Member in California would not subject
any member of the Affiliated Group to any liability for that tax.
12. ENTIRE UNDERSTANDING. This Agreement constitutes the entire
agreement of the parties concerning the subject matter hereof and, effective as
of the date hereof and for the taxable periods to which this Agreement applies,
supersedes all other agreements. This Agreement shall allocate the tax
liabilities of the Affiliated Group for the period January 1, 1995 through
December 31, 1995, and all subsequent taxable years unless Parent and Factors
Holding agree to terminate this Agreement. Notwithstanding its termination, this
Agreement shall continue in effect with respect to any payment or refunds due
for all taxable periods prior to termination.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of any successor, whether by statutory merger,
acquisition of assets or otherwise, to any of the parties hereto, to the same
extent as if the successor had been an original party to the Agreement.
14. EXPENSES. Parent Group and Factors Group each shall bear any
and all expenses that arises from its obligations under this Agreement.
15. NOTICES. All notices and other communications hereunder shall
be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and shall be deemed given on the date on which the notice is received.
If to Parent:
Lucius T. Harris
Capital Bancorp
1221 Brickell Avenue
Miami, Florida 33131
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If to Factors Holding:
Dennis A. McDermott
Capital Factors Holding, Inc.
1799 W. Oakland Park Blvd.
Oakland Park, Florida 33311
16. RESOLUTION OF DISPUTES. Any dispute between the parties with
respect to this Agreement shall be resolved by a public accounting firm or a law
firm reasonably satisfactory to Parent and Factors Holding or pursuant to an
alternative dispute arrangement agreed to by the parties.
17. LEGAL ENFORCEABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective as to that
jurisdiction to the extent of that prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable that provision in any other jurisdiction. Without prejudice to any
rights or remedies otherwise available to any party hereto, each party hereto
acknowledges that damages would be an inadequate remedy for any breach of the
provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
18. CONTROLLING LAW. This Agreement shall be governed by the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized representatives on June __, 1996.
Capital Bancorp
by_______________________________
Lucius T. Harris
Treasurer and Senior Vice President
Capital Bank
by_______________________________
Lucius T. Harris
Chief Financial Officer and
Executive Vice President
6
<PAGE>
Bay Estates, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Cap Coral, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Cap Holdings, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Cap Harbor, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Cap Personality, Inc.
by_______________________________
Lucius T. Harris
Treasurer
7
<PAGE>
Cap Plaza, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Cap Realty, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Cap Temp, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Capital Factors Holding, Inc.
by_______________________________
Dennis A. McDermott
Treasurer
Capital Foreclosed Property,
Inc.
by_______________________________
Lucius T. Harris
Treasurer
8
<PAGE>
Capital Trade Development
Corp.
by_______________________________
Lucius T. Harris
Treasurer
Capital Trading Group, Inc.
by_______________________________
Timothy E. Kish
Secretary
Marina Real, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Pointe Park, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Villages At Imperial Lake, Inc.
by_______________________________
Lucius T. Harris
Treasurer
9
<PAGE>
DJM Holdings & Co.
by_______________________________
Javier J. Holtz
Treasurer
Cap Properties, Inc.
by_______________________________
Lucius T. Harris
Treasurer
Capital Factors, Inc.
by_______________________________
Dennis A. McDermott
Chief Financial Officer and
Senior Vice President
CF Funding Corp.
by_______________________________
Dennis A. McDermott
Treasurer
CF One, Inc.
by_______________________________
Dennis A. McDermott
Treasurer
10
Exhibit 10.15
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
January 1, 1996 by and between CAPITAL FACTORS HOLDING, INC., a Florida
corporation (the "Company"), CAPITAL FACTORS, INC., a Florida corporation
("Factors"), and JOHN W. KIEFER (hereinafter called the "Executive").
R E C I T A L S
A. The Executive is currently employed as President and Chief Executive
Officer of the Company and of its direct and indirect subsidiaries, including
Factors (collectively, the "Subsidiaries").
B. The Executive possesses intimate knowledge of the business and
affairs of the Company and the Subsidiaries, their policies, methods and
personnel.
C. The Board of Directors of the Company (the "Board") recognizes that
the Executive has contributed to the growth and success of the Company and the
Subsidiaries, and desires to assure the Company and the Subsidiaries of the
Executive's continued employment and to compensate him therefor.
D. The Board has determined that this Agreement will reinforce and
encourage the Executive's continued attention and dedication to the Company and
the Subsidiaries.
E. The Executive is willing to make his services available to the
Company and the Subsidiaries on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERMS. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company and its
Subsidiaries, including Factors, on the terms and conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the term of this Agreement, the
Executive shall serve as the President and Chief Executive Officer of the
Company and of such of the Subsidiaries, including Factors, as directed by the
Board, shall diligently perform all services as may be assigned to him by the
Board (provided that, such services shall not materially
<PAGE>
differ from the services currently provided by the Executive), and shall
exercise such power and authority as may from time to time be delegated to him
by the Board. The Executive shall devote his full time and attention to the
business and affairs of the Company and the Subsidiaries, render such services
to the best of his ability, and use his best efforts to promote the interests of
the Company and the Subsidiaries.
2. TERM. The term of this Agreement, and the employment of the Executive
hereunder, shall commence as of January 1, 1996 (the "Commencement Date") and
shall expire on December 31, 2000 (the "Expiration Date"), unless sooner
terminated prior to the Expiration Date in accordance with the terms and
conditions hereof (the "Term").
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary at the
annual rate of $300,000 (the "Base Salary") during the term of this Agreement,
with such Base Salary payable in installments consistent with the Company's or
Capital Factors, Inc.'s normal payroll schedule, subject to applicable
withholding and other taxes. The Base Salary shall be reviewed, at least
annually, for merit increases and may, by action and in the discretion of the
Board or the Company's Compensation and Benefits Committee, be increased at any
time or from time to time. At a minimum, the Base Salary shall be increased each
year by $25,000.
3.2 SIGNING BONUS AND COMPANY LOAN. Upon execution of this
Agreement, the Company shall: (i) pay the Executive $250,000 in cash as a
signing bonus, subject to applicable withholding and other taxes; and (ii) loan
the Executive $100,000 (the "Company Loan"). The Company Loan shall bear
interest at the "mid-term applicable federal rate" as such term is defined in
Section 1274(d) of the Internal Revenue Code. The entire principal balance
together with all accrued interest thereon shall be due and payable in full on
the earlier of (i) the Expiration Date or (ii) the termination of this
Agreement. Notwithstanding the foregoing, the Company shall, for each December
31st during the Term that Executive continues to be employed by the Company,
forgive 20 percent of the outstanding principal balance of the Company Loan
together with all accrued interest attributable to the forgiven principal. In
the event of the death or disability of the Executive, the Company Loan shall be
forgiven in full. The Executive or his estate shall be responsible for all
applicable withholding and other taxes attributable to the forgiveness of
indebtedness and such forgiveness shall be expressly conditioned upon the
Executive satisfying all such withholding and other tax obligations.
3.3 ANNUAL BONUSES. The Executive shall be entitled to receive
incentive compensation ("Incentive Compensation") for each year during the Term
of this Agreement, commencing with the 1996 year, as set forth below:
(a) Attached hereto as Exhibits "A" and "B" is
Executive's strategic plan (the "Plan") for the Company and the Subsidiaries
during the Term, including projections as to net revenues ("Projected Net
Revenues") and net earnings before income
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taxes ("Projected EBT") as set forth on Exhibits "A" and "B." Exhibit "A"
assumes completion of a Public Offering (as defined in Section 4.5 hereof). For
purposes hereof, "Net Revenues" is the sum of (i) the difference between
interest income and interest expense, (ii) factoring fees or commission income
and (iii) other income. For purposes hereof, "EBT" is net earnings before income
taxes or the difference between (i) Net Revenues and (ii) the sum of total
operating expenses and any provisions, and is otherwise referred to in the Plan
and on the Company's consolidated financial statements as "Income Before Income
Taxes."
(b) Not less than 45 days prior to the beginning of each
calendar year during the Term, the Executive shall propose an annual budget for
the forthcoming year (the "Annual Budget"). Approval of each Annual Budget shall
be in the sole discretion of the Board and the Company's Compensation and
Benefits Committee. After 1996, in no event shall Net Revenues and EBT in any
Annual Budget be less than Projected Net Revenues and Projected EBT as set forth
on Exhibit "A" or Exhibit "B" hereto, as applicable, for the preceding calendar
year, unless otherwise agreed by the Board and the Company's Compensation and
Benefits Committee in its sole discretion. Exhibit "A" shall be used to
determine Projected Net Revenues and Projected EBT if the Company has completed
a Public Offering (as defined in Section 4.5 hereof) on or prior to the year
applicable. Otherwise, Exhibit "B" shall be used to determined Projected Net
Revenues and Projected EBT. For purposes of this Agreement, the Net Revenues and
EBT as set forth in any Annual Budget shall be referred to as "Target Net
Revenues" and "Target EBT" for the calendar year with respect to which the
Annual Budget was prepared. Furthermore, Target Net Revenues and Target EBT for
1996 are $45,289,295 and $18,606,913, respectively, if an IPO is completed in
1996 and $43,915,787 and $17,233,405, respectively, if an IPO is not completed
in 1996.
(c) Within 90 days after the end of each calendar year
during the Term, the Company shall calculate Net Revenues for such preceding
calendar year. In addition, the Company shall calculate an amount equal to the
quotient of Net Revenues for such year divided by Target Net Revenues for such
year (the "Net Revenues Realization Ratio"). For each such year, the Executive
shall be entitled to a bonus (the "Net Revenues Bonus") equal to the product of
(i) Base Salary for the applicable year and (ii) the applicable percentage (the
"Applicable Percentage") set forth on Exhibit "C" to this Agreement next to the
Net Revenues Realization Ratio that is equal to or, if not equal, closest to but
less than the Net Revenues Realization Ratio for that year. For example, the Net
Revenues Bonus shall be 20% of Base Salary if Net Revenues = Target Net
Revenues.
(d) Within 90 days after the end of each calendar year
during the Term, the Company shall calculate EBT for such preceding calendar
year. In addition, the Company shall calculate an amount equal to the quotient
of EBT for such year divided by Target EBT for such year (the "EBT Realization
Ratio"). For each such year, the Executive shall be entitled to a bonus (the
"EBT Bonus") equal to the product of (i) Base Salary for the applicable year and
(ii) the Applicable Percentage set forth on Exhibit "D" to this
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<PAGE>
Agreement next to the EBT Realization Ratio that is equal to or, if not equal,
closest to but less than the EBT Realization Ratio for that year. For example,
the EBT Bonus shall be 80% of Base Salary if EBT = Target EBT.
(e) Net Revenues and EBT for each year during the Term
shall be as reported on or calculated from the Company's annual audited
consolidated financial statements for the Company's calendar year and shall be
calculated in accordance with generally accepted accounting principles, applied
consistently with prior periods.
(f) The Executive shall be entitled to receive the
estimated amount of the Incentive Compensation (the "Estimated Incentive
Compensation"), net of applicable withholding and other taxes, within fifteen
(15) days after the end of each year during the Term, such Estimated Incentive
Compensation to be based on the Company's unaudited consolidated financial
statements as reviewed and approved by the Board. The Estimated Incentive
Compensation will be subject to upward or downward adjustment based on the
Company's annual audited consolidated financial statements from the Company's
independent certified public accountants (the "Adjustment"). The Adjustment
shall be paid by the Executive to the Company, or shall be paid by the Company
to the Executive, as the case may be, within fifteen (15) days of receipt of the
Company's audited consolidated financial statements. In the event the Executive
does not reimburse the Company for any Adjustment within such fifteen-day
period, the Company shall have the right to offset the Adjustment against any
other payments due to the Executive hereunder.
3.4 DEFERRED COMPENSATION. The Executive shall be entitled to
deferred compensation equal to .67 of his Base Salary (the "Deferred
Compensation"), vesting and payable as set forth below, for each year during the
Term that (i) both Net Revenues and EBT are equal to or greater than applicable
Projected Net Revenues and Projected EBT as set forth in the applicable Plan (as
determined in accordance with Section 3.3(b)), (ii) Net Revenues for such year
have increased at least 13.5% over Net Revenues for the prior year, and (iii)
EBT for such year has increased at least 22.5% over EBT for the prior year.
The Executive's rights in and to the Deferred Compensation for each year
shall vest as follows:
(i) The Executive shall vest in 50% of the Deferred
Compensation payable for any year during the Term on the January 1 first
following the third anniversary of December 31 of the year in which
Deferred Compensation is earned by the Executive, provided that the
Executive is still employed by the Company at such time;
(ii) The Executive shall vest in an additional 25% of the
Deferred Compensation payable for any year during the Term on the
January 1 first following the fourth anniversary of December 31 of the
year in which Deferred Compensation is earned by the Executive, provided
that the Executive is still employed by the Company at such time;
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<PAGE>
(iii) The Executive shall vest in the final 25% of the
Deferred Compensation payable for any year during the Term on the
January 1 first following the fifth anniversary of December 31 of the
year in which Deferred Compensation is earned by the Executive, provided
that the Executive is still employed by the Company at such time; and
(iv) Notwithstanding the foregoing, the Executive shall
not be required to remain employed by the Company after the Expiration
Date in order to vest in Deferred Compensation vesting after the
Expiration Date, provided that the Executive is employed by the Company
pursuant to this Agreement through the Expiration Date. Furthermore,
should the Company and the Executive enter into another employment
agreement or amend or extend this Agreement for an additional period of
five years or more, then, immediately following the Expiration Date, the
remaining unvested portion of the Deferred Compensation shall
immediately become vested.
Subject to Section 3.6 hereof, upon or after the Executive's vesting in any
Deferred Compensation, whether during or after the Term, such Deferred
Compensation shall be paid to the Executive. Subject to Section 3.6 hereof,
payments shall be made on the date on which the Executive's Deferred
Compensation vests (the "Vesting Date"), or on such later date elected in
writing by the Executive at least one year prior to the earlier of the Vesting
Date or the Expiration Date.
3.5 BOARD ELECTION ON PAYMENT OF COMPENSATION. At the election of
the Board, all or any portion of the compensation or any other amounts due to
the Executive pursuant to this Section 3 or any other section of this Agreement
shall be paid by Factors.
3.6 EVENT OF NON-DEDUCTIBILITY.
SECTION 162(M) LIMITS. Notwithstanding any other provision of
this Agreement, if the Company becomes a separate publicly-held corporation (a
"Separate Publicly Held Corporation") for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder
(collectively, "Section 162(m)"), then for each calendar year that ends after
the first regularly scheduled meeting of the Company's shareholders that occurs
more than 12-months after the Company becomes a Separate Publicly Held Company,
payment of the portion (the "Section 162(m) Portion") of the Executive's
Incentive Compensation earned for that calendar year that would not otherwise be
deductible by reason of Section 162(m) (determined after taking into account all
other remuneration required to be taken into account under Section 162(m) for
the year), as well as payment of any Deferred Compensation earned for such year,
shall be subject to the following conditions: (i) the performance goals set
forth in Sections 3.3 and 3.4 that must be satisfied in order for the Section
162(m) Portion to be earned for that year shall be subject to the approval of,
and may be modified by, the Compensation Committee of the Company, at such times
as may be required for the Section 162(m) Portion to be deductible
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<PAGE>
under Section 162(m); (ii) payment of the Section 162(m) Portion shall be
subject to the approval by the shareholders of the Company of the material terms
of the performance goals relating to the Section 162(m) Portion before the
Section 162(m) Portion is paid; and (iii) the maximum amount of Incentive
Compensation and Deferred Compensation payable to the Executive is as set forth
in Sections 3.3 and 3.4 and Exhibits "C" and "D." If and to the extent that any
remuneration (including without limitation any Deferred Compensation) payable by
the Company to the Executive for any year would exceed the maximum amount of
such remuneration that the Company may deduct for that year by reason of Section
162(m), payment of the portion of the remuneration for that year that would not
be so deductible under Section 162(m) shall, in the sole discretion of the
Compensation and Benefits Committee of the Company, be deferred so that it shall
become payable at such time or times as the Compensation and Benefits Committee
of the Company reasonably determines that it first would be deductible by the
Company under Section 162(m), with interest at the "short-term applicable
federal rate" as such term is defined in Section 1274(d) of the Code. In
addition, the grant of options to purchase shares of Common Stock pursuant to
Section 4.5 hereof shall be subject to and conditioned upon (i) the approval by
either the Stock Option Committee of Capital Bancorp before the Company becomes
a separate publicly-held corporation or the Compensation Committee of the
Company after the Company becomes a separate publicly-held corporation, and (ii)
the approval by shareholders of the Company after the Company becomes a separate
publicly-held corporation, of a stock option plan pursuant to which the options
shall be granted.
3.7 NO PAYMENT IN VIOLATION OF APPLICABLE LAW OR REGULATION.
Notwithstanding anything else contained herein, no payment shall be made
hereunder that constitutes a golden parachute payment or prohibited
indemnification payment in violation of 12 CFR Part 359.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. During the term of Executive's
employment hereunder, the Company or the Subsidiaries, upon the submission of
proper substantiation by the Executive, shall reimburse the Executive for all
reasonable expenses actually paid or incurred by the Executive in the course of
and pursuant to the business of the Company or the Subsidiaries. The Executive
shall account to the Company or the relevant Subsidiary in writing for all
expenses for which reimbursement is sought and shall supply to the Company or
the relevant Subsidiary copies of all relevant invoices, receipts or other
evidence reasonably requested by the Company or the relevant Subsidiary.
4.2 OTHER BENEFITS. The Executive shall be entitled to
participate in all medical and hospitalization, group life insurance, and any
and all other plans as are presently and hereinafter offered by the Company to
its executives. The Executive shall be entitled to four weeks of vacation every
year. During the term of this Agreement, the Company shall continue to pay for
the Executive's membership in a country club on terms consistent with past
practices.
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<PAGE>
4.3 WORKING FACILITIES. The Company shall furnish the Executive
with an office, secretarial help and such other facilities and services suitable
to his position and adequate for the performance of his duties hereunder.
4.4 AUTOMOBILE. The Company shall continue to provide the
Executive with the use of an automobile comparable to the existing automobile
provided to Executive, together with reimbursement of the operating expenses
thereof.
4.5 STOCK OPTIONS. In the event the Company sells its common
stock, par value $.01 per share (the "Common Stock"), pursuant to any
registration statement declared effective under the Securities Act of 1933, as
amended (the "Public Offering") during the Term, then, subject to the terms and
conditions of this Section 4.5, the Company shall grant to the Executive
sufficient non-qualified options to purchase the Company's Common Stock so that
at the end of the Term, the Executive will have been granted non-qualified
options to purchase one percent (1.0%) of the total issued and outstanding
shares of the Company's Common Stock, after giving effect to the Public
Offering. The number of shares of Common Stock subject to the options granted
hereunder shall be adjusted for any subsequent stock splits, stock dividends or
similar recapitalizations of the Company's Common Stock which results in an
increase or decrease of the number of shares of outstanding Common Stock of the
Company. Such options will be granted under (and therefore be subject to all
terms and conditions of) the Company's stock option plan in effect at that time
and all rules and regulations of the Securities and Exchange Commission
applicable to stock option plans then in effect, and will contain such
restrictions as required by the Board or applicable committee thereof. The
options will (i) be granted upon effectiveness of the Public Offering, and (ii)
have a per share exercise price equal to the Public Offering price of the Common
Stock. The options shall vest as determined by the Board. The Executive may be
considered for the grant of options under the Capital Bancorp Stock Option Plan
pursuant to the terms thereof and subject to the restrictions contained therein,
including those as to eligibility.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice to the Executive, to terminate the Executive's
employment hereunder, for cause. For purposes of this Agreement, the term
"cause" shall mean (i) an action or omission of the Executive which constitutes
a willful and material breach of this Agreement which is not cured within
fifteen (15) days after receipt by the Executive of written notice of same, (ii)
fraud, embezzlement, misappropriation of funds or breach of trust, (iii) any
criminal act which is a felony, (iv) gross negligence in connection with the
performance of the Executive's duties hereunder, (v) material and willful or
knowing failure or refusal (other than as a result of a disability) by the
Executive to perform his duties hereunder, or (vi) the written request by any
regulatory agency that regulates Capital Bank or Capital Bancorp that the
Executive be removed from his duties hereunder, such written request to set
forth in detail the basis therefor. Any termination for cause shall be made in
writing to
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<PAGE>
the Executive, which notice shall set forth in detail all acts or omissions upon
which the Company is relying for such termination. The Executive shall have the
right to address the Company's Board regarding the acts set forth in the notice
of termination. Upon any termination pursuant to this Section 5.1, the Executive
shall be entitled to be paid his Base Salary to the date of termination and the
Company shall have no further liability hereunder (other than for (i)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (ii)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Executive's employment
hereunder, if the Executive shall, as the result of mental or physical
incapacity, illness or disability, become unable to perform his obligations
hereunder for a period of 90 consecutive days. Upon any termination pursuant to
this Section 5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice, (ii)
pay to the Executive the Incentive Compensation, if any, not yet paid to the
Executive for any year prior to such termination, at such time as the Incentive
Compensation would otherwise have been payable to the Executive, (iii) pay to
the Executive a severance payment equal to three (3) months of the Executive's
Base Salary at the time of such disability, (iv) pay to the Executive (within 45
days after such termination) a pro rata portion of the Incentive Compensation,
if any, for the year in which such termination occurs, as calculated pursuant to
the terms of Section 3.3; provided that, for purposes of such calculation, (x)
Net Revenues and EBT shall be calculated for the portion of the year through the
end of the month prior to the month in which such termination occurs, and based
upon unaudited financial information prepared in accordance with generally
accepted accounting principles, applied consistently with prior periods, as
approved and reviewed by the Board, (y) Target Net Revenues and Target EBT shall
be modified by multiplying each by a fraction, the numerator of which is the
number of months in the year through the month prior to the month in which
termination occurs and the denominator of which is 12 and (z) in determining the
Net Revenues Bonus and EBT Bonus, Base Salary shall be the amount of Base Salary
actually paid to the Executive during the year of termination other than
pursuant to Section 5.2(iii), and (v) pay to the Executive, within 45 days after
the termination date, any Deferred Compensation earned in prior years during the
Term, whether or not vested, and a pro rata portion of the Deferred Compensation
for the current year, if any. Whether any Deferred Compensation is due for the
current year shall be determined pursuant to Section 3.4(i)-(iii) after
multiplying each of Net Revenues and EBT for the year through the month prior to
the month in which termination occurs by a fraction, the numerator of which is
12 and the denominator of which is the number of months in the year through the
month prior to the month in which termination occurs, and using the product of
each in performing the calculations under Section 3.4(i)-(iii). If Deferred
Compensation is due, the amount due shall be calculated by multiplying .67 by
the amount of Base Salary paid to the Executive for the year other than pursuant
to Section 5.2(iii). The Company shall have no further liability hereunder
(other than for (i) reimbursement
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for reasonable business expenses incurred prior to the date of termination,
subject, however to the provisions of Section 4.1, and (ii) payment of
compensation for unused vacation days that have accumulated during the calendar
year in which such termination occurs).
5.3 DEATH. In the event of the death of the Executive during the
term of his employment hereunder, the Company shall (i) pay to the estate of the
Executive any unpaid Base Salary through the Executive's date of death, (ii) pay
to the estate of the deceased Executive the Incentive Compensation, if any, not
yet paid to the estate of the Executive for any year prior to the date of death,
at such time as the Incentive Compensation would otherwise have been payable to
the Executive, (iii) pay to the estate of the Executive (within 45 days after
such termination) a pro rata portion of the Incentive Compensation, if any, for
the year in which such termination occurs, as calculated pursuant to the terms
of Section 3.3; provided that, for purposes of such calculation, (x) Net
Revenues and EBT shall be calculated for the portion of the year through the end
of the month prior to the month in which such termination occurs, and based upon
unaudited financial information prepared in accordance with generally accepted
accounting principles, applied consistently with prior periods, as approved and
reviewed by the Board, (y) Target Net Revenues and Target EBT shall be
multiplied by multiplying each by a fraction, the numerator of which is the
number of months in the year through the month prior to the month in which
termination occurs and the denominator of which is 12 and (z) in determining the
Net Revenues Bonus and EBT Bonus, Base Salary shall be the amount of Base Salary
actually paid to the Executive during the year of termination, and (iv) pay to
the estate of the Executive, within 45 days after the termination date, any
Deferred Compensation earned in prior years during the Term, whether or not
vested, and a pro rata portion of the Deferred Compensation for the current
year, if any. Whether any Deferred Compensation is due for the current year
shall be determined pursuant to Section 3.4(i)-(iii) after multiplying each of
Net Revenues and EBT for the year through the month prior to the month in which
termination occurs by a fraction, the numerator of which is 12 and the
denominator of which is the number of months in the year through the month prior
to the month in which termination occurs, and using the product of each in
performing the calculations under Section 3.4(i)-(iii). If Deferred Compensation
is due, the amount due shall be calculated by multiplying .67 by the amount of
Base Salary paid to the Executive for the year. The Company shall have no
further liability hereunder (other than for (i) reimbursement for reasonable
business expenses incurred prior to the date of the Executive's death, subject,
however to the provisions of Section 4.1, and (ii) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall have
the right to terminate the Executive's employment hereunder by written notice to
the Executive. Upon any termination pursuant to this Section 5.4 (that is not a
termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6), the Company shall
(i) pay to the Executive any unpaid Base Salary through the effective date of
termination specified in such notice, (ii) subject to the last sentence of this
Section 5.4, continue to pay the Executive's Base Salary through the
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Expiration Date, in the manner and at such time as the Base Salary would
otherwise have been payable to the Executive, (iii) pay to the Executive the
Incentive Compensation, if any, not yet paid to the Executive for any year prior
to such termination, at such time as the Incentive Compensation would otherwise
have been payable to the Executive, (iv) pay to the Executive (within 45 days
after such termination) a pro rata portion of the Incentive Compensation, if
any, for the year in which such termination occurs, as calculated pursuant to
the terms of Section 3.3; provided that, for purposes of such calculation, (x)
Net Revenues and EBT shall be calculated for the portion of the year through the
end of the month prior to the month in which such termination occurs, and based
upon unaudited financial information prepared in accordance with generally
accepted accounting principles, applied consistently with prior periods, as
approved and reviewed by the Board, (y) Target Net Revenues and Target EBT shall
be multiplied by multiplying each by a fraction, the numerator of which is the
number of months in the year through the month prior to the month in which
termination occurs and the denominator of which is 12 and (z) in determining the
Net Revenues Bonus and EBT Bonus, Base Salary shall be the amount of Base Salary
actually paid to the Executive during the year of termination other than
pursuant to Section 5.4(ii), and (v) pay to the Executive, within 45 days after
the termination date, any Deferred Compensation earned in prior years during the
Term, whether or not vested, and a pro rata portion of the Deferred Compensation
for the current year, if any. Whether any Deferred Compensation is due for the
current year shall be determined pursuant to Section 3.4(i)-(iii) after
multiplying each of Net Revenues and EBT for the year through the month prior to
the month in which termination occurs by a fraction, the numerator of which is
12 and the denominator of which is the number of months in the year through the
month in which termination occurs, and using the product of each in performing
the calculations under Sections 3.4(i)-(iii). If Deferred Compensation is due,
the amount due shall be calculated by multiplying .67 by the amount of Base
Salary paid to the Executive for the year other than pursuant to Section
5.4(ii). The Company shall have no further liability hereunder (other than for
(i) reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (ii)
payment of compensation for unused vacation days that have accumulated during
the calendar year in which such termination occurs). Notwithstanding the
foregoing, if the Executive shall find other employment prior to the Expiration
Date, then the Executive shall notify the Company in writing of the date and
terms of such employment and the Company shall be entitled to reduce the amount
payable to the Executive pursuant to Section (ii) during the period from the
commencement of such other employment until the Expiration Date (the "Other
Employment Period") by the compensation payable to the Executive for services
rendered in connection with such other employment during the Other Employment
Period. Nothing contained in this Section 5.4 or elsewhere herein shall relieve
that Executive from any obligation to comply with any of the provisions of
Section 6 hereof, which shall remain binding on the Executive.
5.5 RESIGNATION BY EXECUTIVE. The Executive shall at all times have the
right, upon 90 days written notice to the Company, to terminate the Executive's
employment hereunder. Upon any termination pursuant to this Section 5.5, the
Executive shall be
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entitled to be paid his Base Salary to the date of termination and the Company
shall have no further liability hereunder (other than for (i) reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1, and (ii) payment of compensation for
unused vacation days that have accumulated during the calendar year in which
such termination occurs).
5.6 CHANGE IN CONTROL OF THE COMPANY. In the event that (x) a Change in
Control (as hereafter defined) in the Company shall occur during the Term, and
(y) within one year of such Change in Control, the Executive is (i) assigned any
position, duties or responsibilities that are significantly diminished or
changed when compared with the position, duties or responsibilities of the
Executive prior to such Change in Control, (ii) forced to relocate to another
location more than 50 miles from his location prior to the Change in Control or
(iii) no longer provided coverage under benefit programs in existence prior to
the Change in Control (unless a comparable substitute is offered) (any of (i) to
(iii) being hereinafter referred to as an "Event"); then the Executive, by
written notice to the Company at any time within the thirty (30) day period
following the occurrence of an Event, shall have the right to terminate his
employment hereunder. For purposes of this Agreement, the term "Change in
Control" shall be deemed to have occurred if (a) Capital Bank and any other
direct or indirect subsidiaries of Capital Bancorp ("Corporate Affiliates"),
after aggregating all the shares of the Company held by such entities, no longer
own enough shares of the Company to, in the aggregate, be the largest single
shareholder of the Company, (b) Capital Bank and its Corporate Affiliates, in
the aggregate, cease to own at least 25% of the outstanding Common Stock of the
Company; or (c) there occurs any transaction which shall include a series of
transactions occurring within 60 days or occurring pursuant to a plan
(collectively, "Transaction") that has the result that (i) shareholders of
Capital Bancorp immediately before such Transaction cease to own at least 51% of
the voting stock of Capital Bancorp or of any entity that results from the
participation of Capital Bancorp in a reorganization, consolidation, merger,
liquidation or any other form of corporate transaction and (ii) any person or
group of persons acting in concert acquire in excess of 40% or more of the
outstanding voting stock of Capital Bancorp; provided, however, that it shall
not constitute a "Change in Control" if all or part of the shares in the Company
are distributed to shareholders of Capital Bancorp, regardless of the manner in
which such shares are distributed. In the event that Capital Bank and Capital
Bancorp make such a distribution then, thereafter, a "Change in Control" shall
be deemed to have occurred only upon the following: (a) the shareholders of the
Company shall approve and the Company shall consummate a plan of merger,
consolidation, reorganization, liquidation or any other form of corporate
transaction in which shareholders of the Company immediately before such
transaction cease to own at least 51% of the voting stock of the Company or any
other entity that results from the participation of the Company in any of the
foregoing; or (b) the shareholders of the Company shall approve and the Company
shall consummate a plan for the sale, lease, exchange or other disposition of
all or substantially all of the property and assets of the Company.
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<PAGE>
Upon termination by the Executive pursuant to this Section 5.6, the
Company shall (i) pay to the Executive any unpaid Base Salary through the
effective date of termination specified in such notice, (ii) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any year prior to such termination, at such time as the Incentive Compensation
would otherwise have been payable to the Executive, (iii) pay to the Executive
(within 45 days after such termination) a pro rata portion of the Incentive
Compensation, if any, for the year in which such termination occurs, as
calculated pursuant to the terms of Section 3.3; provided that, for purposes of
such calculation, (x) Net Revenues and EBT shall be calculated for the portion
of the year through the end of the month prior to the month in which such
termination occurs, and based upon unaudited financial information prepared in
accordance with generally accepted accounting principles, applied consistently
with prior periods, as approved and reviewed by the Board, (y) Target Net
Revenues and Target EBT shall be multiplied by multiplying each by a fraction,
the numerator of which is the number of months in the year through the month
prior to the month in which termination occurs and the denominator of which is
12 and (z) in determining the Net Revenues Bonus and EBT Bonus, Base Salary
shall be the amount of Base Salary actually paid to the Executive during the
year of termination other than as a lump sum pursuant to Section 5.6, (iv) pay
to the Executive, within 45 days after the termination date, any Deferred
Compensation earned in prior years during the Term, whether or not vested, and a
pro rata portion of the Deferred Compensation for the current year, if any
(whether any Deferred Compensation is due for the current year shall be
determined pursuant to Section 3.4(i)-(iii) after multiplying each of Net
Revenues and EBT for the year through the month prior to the month in which
termination occurs by a fraction, the numerator of which is 12 and the
denominator of which is the number of months in the year through the month in
which termination occurs, and using the product of each in performing the
calculations under Sections 3.4(i)-(iii). If Deferred Compensation is due, the
amount due shall be calculated by multiplying .67 by the amount of Base Salary
paid to the Executive for the year other than as a lump sum pursuant to this
Section 5.6); and (v) pay to the Executive a lump sum equal to the sum of (a)
two years' Base Salary at the date of termination plus (b) the product of his
Incentive Compensation for the prior year multiplied by two. In the event that
the Executive's employment is terminated by the Company within one year
following a Change in Control and Without Cause, then, in lieu of the
compensation in clause (v) of this paragraph above, the Company shall pay to the
Executive a lump sum equal to the sum of (a) two years' Base Salary at the date
of termination and (b) the product of the sum of his Incentive Compensation and
Deferred Compensation for the prior year multiplied by two. The Company shall
also continue to pay the premiums for the same or substantially similar medical
and hospitalization, life and other insurance coverage provided to the Executive
pursuant to Section 4.2 hereof for a period of two years from the date of
termination. In addition, all options held by the Executive to purchase shares
of Common Stock shall immediately vest in the Executive, subject to any other
restrictions contained in the applicable option agreement or option plan. The
Company shall have no further liability hereunder (other than for (i)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the
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<PAGE>
provisions of Section 4.1, and (ii) payment of compensation for unused vacation
days that have accumulated during the calendar year in which such termination
occurs).
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. For the period through the Expiration Date
(except that, if the Executive's employment is terminated pursuant to Sections
5.4 or 5.6 hereof, the period shall be the greater of (i) one year after such
termination date, but in no event beyond the Expiration Date, or (ii) (A) if the
termination is pursuant to Section , the period of time that or for which the
Executive is receiving Base Salary payments or (B) if the termination is
pursuant to Section , the period of time with respect to which the Executive
receives a lump sum Base Salary payment pursuant to Section (identified as two
years in Section 5.6), the Executive shall not, directly or indirectly, engage
in or have any interest in any sole proprietorship, partnership, corporation or
business or any other person or entity (whether as an employee, officer,
director, partner, agent, security holder, creditor, consultant or otherwise)
that directly or indirectly engages in competition with the Company in any state
in which the Company operates or has a client or customer at the time of such
termination; provided that such provision shall not apply to the Executive's
ownership of Common Stock of the Company or the acquisition by the Executive,
solely as an investment, of securities of any issuer that is registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and
that are listed or admitted for trading on any United States national securities
exchange or that are quoted on the National Association of Securities Dealers
Automated Quotations System, or any similar system or automated dissemination of
quotations of securities prices in common use, so long as the Executive is not a
member of any control group (within the meaning of the rules and regulations of
the Securities and Exchange Commission) of any such issuer.
6.2 NONDISCLOSURE. The Executive shall not divulge, communicate,
use to the detriment of the Company or for the benefit of any other person or
persons, or misuse in any way, any confidential information pertaining to the
business of the Company. Any confidential information or data now or hereafter
acquired by the Executive with respect to the business of the Company (which
shall include, but not be limited to, information concerning the Company's
financial condition, prospects, customers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. For the period
through the Expiration Date, and for a period of two years following the
Expiration Date (except that, the period shall be six months after the
Expiration Date if (i) the Executive is employed by the Company on the
Expiration Date, and (ii) the Company has not offered, at or prior to the
Expiration Date, to employ the Executive after the Expiration Date on terms that
provide for payment of (x) a base salary equal to or greater than the Base
Salary (adjusted for cost-of-living increases) being paid to the Executive on
the Expiration Date, and (y)
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<PAGE>
incentive compensation on terms equal to or greater than the Incentive
Compensation terms in effect as of the Expiration Date); the Executive shall
not, directly or indirectly, for himself or for any other person, firm,
corporation, partnership, association or other entity (i) employ or attempt to
employ or enter into any contractual arrangement with any employee or former
employee of the Company, unless such employee or former employee has not been
employed by the Company for a period in excess of six months, and/or (ii) call
on or solicit any of the actual or targeted prospective clients of the Company
on behalf of any person or entity in connection with any business competitive
with the business of the Company, nor shall the Executive make known the names
and addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of Executive's duties under this Agreement.
6.4 BOOKS AND RECORDS. All books, records and accounts relating
in any manner to the customers or clients of the Company, whether prepared by
the Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.5 DEFINITION OF COMPANY. As used in this Section 6, the term
"Company" shall also include Factors and any existing or future subsidiaries of
the Company that are operating during the time periods described herein.
6.6 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive acknowledges and
confirms that the length of the term of the provisions of this Section 6 and the
geographical restrictions contained in Section 6.1 are fair and reasonable and
not the result of overreaching, duress or coercion of any kind. The Executive
further acknowledges and confirms that his observance of each of the covenants
contained in this Section 6 will not cause him any undue hardship, financial or
otherwise, and that such covenants are fair and reasonable and are reasonably
required for the protection of the interests of the Company, its affiliates,
officers and directors, and to prevent irreparable harm to the foregoing. The
Executive acknowledges and confirms that his special knowledge of the business
of the Company is such as would cause the Company serious injury or loss if he
were to use such ability and knowledge to the benefit of a competitor or were to
compete with the Company in violation of the terms of this Section 6.
6.7 SURVIVAL. The provisions of this Section 6 shall survive the
termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Section 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of
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<PAGE>
competent jurisdiction enjoining and restraining any violation of any or all of
the covenants contained in Section 6 of this Agreement by the Executive or any
of his affiliates, associates, partners or agents, either directly or
indirectly, and that such right to injunction shall be cumulative and in
addition to whatever other remedies the Company may possess.
8. ASSIGNMENT. The Executive agrees that the Company and Factors shall
have the right to assign this Agreement. The Executive shall not delegate his
employment obligations hereunder, or any portion thereof, to any other person.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive, the Company and
Factors (or any of their affiliates) with respect to such subject matter. This
Agreement may not be modified in any way unless by a written instrument signed
by the Company, Factors and the Executive.
11. NOTICES: Any notice required or permitted to be given hereunder
shall be deemed given when delivered by hand or when deposited in the United
States mail, by registered or certified mail, return receipt requested, postage
prepaid, (i) if to the Company or Factors, to the address of the Company's
principal offices in Fort Lauderdale, Florida, with a copy to Capital Bank, 1221
Brickell Avenue, Miami, Florida 33133, Attention: President, and (ii) if to the
Executive, to his address as reflected on the payroll records of the Company, or
to such other address as either party hereto may from time to time give notice
of to the other.
12. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit of
and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including, without limitation, any successor to the Company and
Factors, whether by merger, consolidation, sale of stock, sale of assets or
otherwise.
13. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
- 15 -
<PAGE>
14. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
15. DAMAGES. Nothing contained herein shall be construed to prevent the
Company, Factors and/or the Executive from seeking and recovering from the other
damages sustained by either or both of them as a result of its or his breach of
any term or provision of this Agreement. In the event that either party hereto
brings suit for the collection of any damages resulting from, or the injunction
of any action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
16. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
18. INDEMNIFICATION. Subject to limitations imposed by law, the Company
shall indemnify the Executive to the fullest extent permitted by law.
19. WAIVER OF JURY TRIAL. THE UNDERSIGNED EXPRESSLY (I) WAIVE ANY RIGHT
TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT
OF THIS AGREEMENT OR IN ANY WAY RELATED OR INCIDENTAL TO THE PERFORMANCE OF THE
PARTIES' OBLIGATIONS HEREUNDER, AND (II) AGREE THAT THE COMPANY, FACTORS OR THE
EXECUTIVE MAY FILE AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION 19 WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT TO THE WAIVER OF THE RIGHT TO TRIAL BY
JURY.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
CAPITAL FACTORS HOLDING, INC.
By: /s/ JAVIER J. HOLTZ
FACTORS:
CAPITAL FACTORS, INC.
By: /s/ JAVIER J. HOLTZ
EXECUTIVE:
/s/ JOHN W. KIEFER
JOHN W. KIEFER
- 17 -
<PAGE>
EXHIBIT "C"
NET REVENUES BONUS
NET REVENUES
REALIZATION RATIO APPLICABLE PERCENTAGE
- ------------------------------------ --------------------------
.50 0.0
.55 2.0
.60 4.0
.65 6.0
.70 8.0
.75 10.0
.80 12.0
.85 14.0
.90 16.0
.95 18.0
1.00 20.0
1.01 20.6
1.02 21.2
1.03 21.8
1.04 22.4
1.05 23.0
1.06 23.4
1.07 23.8
1.08 24.2
1.09 24.6
1.10 25.0
1.11-1.40
increase of 0.2% for each .01% increase in the
Net Revenues Realization Ratio until the
Applicable Percentage is 31% for a Net
Revenues Realization Ratio of 1.40
1.41-2.00
increase of 0.1% for each .01% increase in the
Net Revenues Realization Ratio until the
Applicable Percentage is 37% for a Net
Revenues Realization Ratio of 2.00
2.00+ No further increases in Applicable Percentage
<PAGE>
EXHIBIT "D"
EBT BONUS
EBT REALIZATION RATIO APPLICABLE PERCENTAGE
- ------------------------------- ------------------------
.50 0.0
.55 8.0
.60 16.0
.65 24.0
.70 32.0
.75 40.0
.80 48.0
.85 56.0
.90 64.0
.95 72.0
1.00 80.0
1.01 82.4
1.02 84.8
1.03 87.2
1.04 89.6
1.05 92.0
1.06 93.6
1.07 95.2
1.08 96.8
1.09 98.4
1.10 100.0
1.11-1.40
increase of 0.8% for each .01%
increase in the EBT Realization
Ratio until the Applicable
Percentage is 124% for an EBT
Realization Ratio of 1.40
1.41-2.00
increase of 0.4% for each .01%
increase in the EBT Realization
Ratio until the Applicable
Percentage is 148% for an EBT
Realization Ratio of 2.00
2.00+ No further increases
Exhibit 10.18
EXECUTION COPY
- --------------------------------------------------------------------------------
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CF ONE, INC.
$10,000,000
7.95% Pay Through Notes due July 2001
NOTE PURCHASE AGREEMENT
Dated as of May 15, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. AUTHORIZATION OF NOTES......................................... 1
2. SALE AND PURCHASE OF NOTES..................................... 1
3. CLOSING........................................................ 1
4. CONDITIONS TO CLOSING.......................................... 2
4.1. Representations and Warranties........................ 2
4.2. Performance; No Default............................... 2
4.3. Compliance Certificates............................... 2
4.4. Opinions of Counsel................................... 3
4.5. Purchase Permitted By Applicable Law, etc............. 3
4.6. Collateral Pledge and Account Agreement............... 3
4.7. Payment of Special Counsel Fees....................... 4
4.8. Private Placement Number.............................. 4
4.9. Changes in Corporate Structure........................ 4
4.10. Proceedings and Documents............................. 4
4.11. Consents.............................................. 4
4.12. Rating................................................ 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 5
5.1. Organization; Power and Authority..................... 5
5.2. Authorization, etc.................................... 5
5.3. Disclosure............................................ 5
5.4. Subsidiaries and Affiliates........................... 6
5.5. Financial Statements.................................. 6
5.6. Compliance with Laws, Other Instruments, etc.......... 6
5.7. Governmental Authorizations, etc...................... 6
5.8. Litigation; Observance of Agreements,
Statutes and Orders................................... 7
5.9. Taxes................................................. 7
5.10. Title to Property..................................... 7
5.11. Compliance with ERISA................................. 7
5.12. Private Offering by the Company....................... 9
5.13. Use of Proceeds; Margin Regulations................... 9
5.14. Existing Indebtedness; Future Liens................... 9
5.15. Status under Investment Company Act...................10
5.16. Certain Amendments....................................10
i
<PAGE>
6. REPRESENTATIONS OF THE PURCHASER...............................10
6.1. Purchase for Investment...............................10
6.2. Source of Funds.......................................10
6.3. No Bankruptcy Petition................................11
6.4. Voting of Senior Certificates.........................12
7. INFORMATION AS TO COMPANY......................................12
7.1. Financial and Business Information...................12
7.2. Officer's Certificate................................15
7.3. Inspection...........................................15
8. PREPAYMENT OF THE NOTES........................................16
8.1. OPTIONAL PREPAYMENTS.................................16
8.2. Allocation of Partial Prepayments....................16
8.3. Maturity; Surrender, etc.............................17
8.4. Purchase of Notes....................................17
8.5. Make-Whole Amount....................................17
9. INTEREST PAYMENTS..............................................19
10. PRINCIPAL PAYMENTS.............................................19
11. AFFIRMATIVE COVENANTS..........................................20
11.1. Compliance with Law.....................................20
11.2. Payment of Taxes and Claims.............................20
11.3. Corporate Existence, etc................................21
11.4. Separate Business.......................................21
11.5. Certain Consents........................................22
12. NEGATIVE COVENANTS.............................................22
12.1. Transactions with Affiliates............................22
12.2. Merger, Consolidation, etc..............................22
12.3. Liens or Disposals......................................22
12.4. Restricted Payments.....................................23
12.5. Incurrence of Indebtedness..............................23
12.6. Modification of, and Rights under,
Certain Documents.................................23
13. PTN EVENTS OF DEFAULT..........................................24
14. REMEDIES ON DEFAULT, ETC.......................................26
14.1. Acceleration............................................26
14.2. Other Remedies..........................................26
14.3. Rescission..............................................27
ii
<PAGE>
14.4. No Waivers or Election of Remedies,
Expenses, etc........................................ 27
14.5. Limited Recourse to the Company........................ 27
15. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES................. 28
15.1. Registration of Notes.................................. 28
15.2. Transfer and Exchange of Notes......................... 28
15.3. Replacement of Notes................................... 29
16. PAYMENTS ON NOTES............................................. 30
16.1. Place of Payment....................................... 30
16.2. Home Office Payment.................................... 30
17. EXPENSES, ETC................................................. 30
17.1. Transaction Expenses................................... 30
17.2. Survival............................................... 31
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT.............................................. 31
19. AMENDMENT AND WAIVER.......................................... 32
19.1. Requirements........................................... 32
19.2. Solicitation of Holders of Notes....................... 32
19.3. Binding Effect, etc.................................... 33
19.4. Notes held by Company, etc............................. 33
20. NOTICES....................................................... 33
21. REPRODUCTION OF DOCUMENTS..................................... 34
22. CONFIDENTIAL INFORMATION...................................... 34
23. SUBSTITUTION OF PURCHASER..................................... 35
24. MISCELLANEOUS................................................. 36
24.1. Successors and Assigns................................. 36
24.2. Payments Due on Non-Business Days...................... 36
24.3. Severability........................................... 36
24.4. Construction........................................... 36
24.5. Counterparts........................................... 36
24.6. Governing Law.......................................... 37
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
iii
<PAGE>
SCHEDULE B -- DEFINED TERMS
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Affiliates, Officers and Directors of
the Company
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.13 -- Use of Proceeds
SCHEDULE 5.14 -- Existing Indebtedness
SCHEDULE 5.16 -- Certain Amendments
EXHIBIT 1 -- Form of Note
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for
the Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel
for the Purchasers
EXHIBIT 4.6 -- Form of Collateral Pledge and
Account Agreement
EXHIBIT 4.11 -- Form of Consent to Pledge
iv
<PAGE>
CF ONE, INC.
7.95% Pay Through Notes due July 2001
as of May 15, 1996
TO THE PURCHASER LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
CF ONE, INC., a Delaware corporation (the "Company"), agrees
with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $10,000,000
aggregate principal amount of its 7.95% Pay Through Notes due July 2001 (the
"NOTES", such term to include any such notes issued in substitution therefor
pursuant to Section 15 of this Agreement). The Notes shall be substantially in
the form set out in Exhibit 1, with such changes therefrom, if any, as may be
approved by you and the Company. Certain capitalized terms used in this
Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit"
are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and you will purchase from the Company, at
the Closing provided for in Section 3, Notes in the principal amount specified
opposite your name in Schedule A at the purchase price of 100% of the principal
amount thereof.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you
shall occur at the offices of Milbank, Tweed, Hadley & McCloy, One Chase
Manhattan Plaza, New York, New York 10005, at 10:00 a.m., New York City time, at
a closing (the "CLOSING") on May 15, 1996 or on such other Business Day
thereafter on or prior to May 31, 1996 as may be agreed upon by the Company and
you. At the Closing the Company will deliver to you the Notes
<PAGE>
to be purchased by you in the form of a single Note (or such greater number of
Notes in denominations of at least $100,000 as you may request as specified in
Schedule A) dated the date of the Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 3050008253 at Capital Bank, 1221 Brickell Avenue, Miami, Florida,
ABA number 0067008414. If at the Closing the Company shall fail to tender such
Notes to you as provided above in this Section 3, or any of the conditions
specified in Section 4 shall not have been fulfilled to your satisfaction, you
shall, at your election, be relieved of all further obligations under this
Agreement, without thereby waiving any rights you may have by reason of such
failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold
to you at the Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this
Agreement and the Pledge Agreement shall be correct when made and at the time of
the Closing.
4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement and the Pledge Agreement
required to be performed or complied with by it prior to or at the Closing and
after giving effect to the issue and sale of the Notes (and the application of
the proceeds thereof as contemplated by Schedule 5.13) no Default or PTN Event
of Default shall have occurred and be continuing.
4.3. COMPLIANCE CERTIFICATES.
(a) OFFICER'S CERTIFICATE. The Company shall have delivered to
you an Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) SECRETARY'S CERTIFICATE. The Company shall have delivered
to you a certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
the Notes, this Agreement and the Pledge Agreement.
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4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Milbank, Tweed,
Hadley & McCloy, counsel for the Company, substantially in the form of Exhibit
4.4(a) and covering such other matters incident to the transactions contemplated
hereby as you or your counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to you) and (B) from Hebb &
Gitlin, your special counsel in connection with such transactions, substantially
in the form set forth in Exhibit 4.4(b) and covering such other matters incident
to such transactions as you may reasonably request.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (I) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (II) not
violate any applicable law or regulation (including, without limitation,
Regulation G, T or X of the Board of Governors of the Federal Reserve System)
and (III) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
4.6. COLLATERAL PLEDGE AND ACCOUNT AGREEMENT.
Contemporaneously with the Closing, you, the Company and the
Collateral Agent shall execute and deliver a Collateral Pledge and Account
Agreement in substantially the form of Exhibit 4.6 hereto, and the Company shall
have directed the Trustee to make all payments due under the Subordinated
Certificates directly to the Collateral Agent until the Trustee shall receive
notice from the Collateral Agent that all of the Secured Obligations have been
paid in full.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 17.1, the Company
shall have paid on or before the Closing the fees, charges and disbursements of
your special counsel referred to in Section 4.4 to the extent reflected in a
statement of such
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counsel rendered to the Company at least one Business Day prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Notes.
4.9. CHANGES IN CORPORATE STRUCTURE.
The Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent financial statements referred
to in Schedule 5.5.
4.10. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
4.11. CONSENTS.
The consent and Tax Opinion required by Section 6.03(c) of the
Pooling and Servicing Agreement with respect to the pledge of the Subordinated
Certificates, which consent shall be in substantially the form of Exhibit 4.11,
shall have been received by the Company.
4.12. RATING.
The Notes shall have received an investment grade rating from
Fitch Investors Service, L.P., Duff & Phelps Rating Co., Standard & Poor's
Ratings Group or Moody's Investors Service, Inc.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its
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jurisdiction of incorporation, and is duly qualified as a foreign corporation
and is in good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The Company has the
corporate power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it transacts and
proposes to transact, to execute and deliver this Agreement, the Notes and the
Pledge Agreement and to perform the provisions hereof and thereof.
5.2. AUTHORIZATION, ETC.
This Agreement, the Notes and the Pledge Agreement have been
duly authorized by all necessary corporate action on the part of the Company,
and each of this Agreement and the Pledge Agreement constitutes, and upon
execution and delivery thereof each Note will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by (I) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (II) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.3. DISCLOSURE.
None of this Agreement, the Pledge Agreement or any written
statement furnished by or on behalf of the Company to you in connection with the
negotiation of the sale of the Notes contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained herein
or therein not misleading. There is no fact known to the Company that the
Company has not disclosed to you in writing that has had or, so far as the
Company can now reasonably foresee, will have a Material Adverse Effect.
5.4. SUBSIDIARIES AND AFFILIATES.
The Company has no Subsidiaries. Schedule 5.4 contains
complete and correct lists (I) of the Company's Affiliates, and (II) of the
Company's directors and senior officers.
5.5. FINANCIAL STATEMENTS.
The Company has delivered to each Purchaser copies of the
financial statements of the Company listed on Schedule 5.5. All of said
financial statements (including in each case the
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related schedules and notes) fairly present in all material respects the
financial position of the Company as of the respective dates specified in such
Schedule and the results of its operations and cash flows for the respective
periods so specified and have been prepared in accordance with GAAP consistently
applied throughout the periods involved except as set forth in the notes
thereto.
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement, the Notes and the Pledge Agreement will not (I) contravene, result in
any breach of, or constitute a default under, or result in the creation of any
Lien (other than the Lien created pursuant to the Pledge Agreement) in respect
of any property of the Company under, any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, lease, corporate charter or by-laws, or any
other agreement or instrument to which the Company is bound or by which the
Company or any of its respective properties may be bound or affected, including,
without limitation, the Subordinated Certificate Documents, (II) conflict with
or result in a breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to the Company or (III) violate any provision of any
statute or other rule or regulation of any Governmental Authority applicable to
the Company.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by the Company of this Agreement or
the Notes.
5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
property of the Company in any court or before any arbitrator of any kind or
before or by any Governmental Authority that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(b) The Company is not in default under any term of any
agreement or instrument to which it is a party or by which it is bound, or any
order, judgment, decree or ruling of any court, arbitrator or Governmental
Authority or in violation of any applicable law, ordinance, rule or regulation
of any Governmental Authority, which default or violation,
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individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
5.9. TAXES.
The Company has filed all tax returns that are required to
have been filed in any jurisdiction, and have paid all taxes shown to be due and
payable on such returns and all other taxes and assessments levied upon it or
its assets, income or franchises, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any
taxes and assessments (I) the amount of which is not individually or in the
aggregate Material or (II) the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Company has established adequate reserves in accordance
with GAAP. The Company knows of no basis for any other tax or assessment that
could reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Company in respect of Federal, state
or other taxes for all fiscal periods are adequate based on GAAP.
5.10. TITLE TO PROPERTY.
The Company has good and sufficient title to the Subordinated
Certificates free and clear of Liens prohibited by this Agreement.
5.11. COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in section 3 of ERISA), and no event, transaction or condition
has occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer
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Plans), determined as of the end of such Plan's most recently ended plan year on
the basis of the actuarial assumptions specified for funding purposes in such
Plan's most recent actuarial valuation report, did not exceed the aggregate
current value of the assets of such Plan allocable to such benefit liabilities.
The term "BENEFIT LIABILITIES" has the meaning specified in section 4001 of
ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning
specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(d) The execution and delivery of this Agreement and the
Pledge Agreement and the issuance and sale of the Notes hereunder will not
involve any transaction that is prohibited under section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first
sentence of this Section 5.11(d) is made in reliance upon and subject to the
accuracy of your representation in Section 6.2 as to the sources of the funds
used to pay the purchase price of the Notes to be purchased by you.
(e) The ERISA Disclosure Document, a copy of which has been
delivered to you, identifies (i) all ERISA Affiliates of the Company and (ii)
each "employee benefit plan" (as defined in section 3 of ERISA) and each "plan"
(as defined in section 4975(e)(1) of the Code) maintained by the Company or any
ERISA Affiliate thereof.
5.12. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than you and not more than 10 other Institutional
Investors, each of which has been offered the Notes at a private sale for
investment. Neither the Company nor anyone acting on its behalf has taken, or
will take, any action that would subject the issuance or sale of the Notes to
the registration requirements of Section 5 of the Securities Act.
5.13. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes
as set forth in Schedule 5.13. No part of the proceeds from the sale of the
Notes hereunder will be used,
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directly or indirectly, for the purpose of buying or carrying any margin stock
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading
in any securities under such circumstances as to involve the Company in a
violation of Regulation X of said Board (12 CFR 224) or to involve any broker or
dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock
does not constitute any of the value of the consolidated assets of the Company
and the Company does not have any present intention that margin stock will
constitute any of the value of such assets. As used in this Section, the terms
"MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings
assigned to them in said Regulation G.
5.14. EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Except as described therein, Schedule 5.14 sets forth a
complete and correct list of all outstanding Indebtedness of the Company as of
the date of this Agreement, since which date there has been no Material change
in the amounts, interest rates, sinking funds, instalment payments or maturities
of the Indebtedness of the Company. The Company is not in default, and no waiver
of default is currently in effect, in the payment of any principal or interest
on any Indebtedness of the Company and no event or condition exists with respect
to any Indebtedness of the Company that would permit (or that with notice or the
lapse of time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.14, the Company has not
agreed or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property, whether now owned or hereafter
acquired, to be subject to a Lien not permitted by Section 12.3.
5.15. STATUS UNDER INVESTMENT COMPANY ACT.
The Company is not subject to regulation under the Investment
Company Act of 1940, as amended.
5.16. CERTAIN AMENDMENTS.
Schedule 5.16 is a complete list of the amendments to the
Pooling and Servicing Agreement and to the three Series Supplements, as of the
date of execution and delivery of this Agreement.
6. REPRESENTATIONS OF THE PURCHASER.
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6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own
account, or for the account of one or more separate accounts maintained by you,
for investment and with no present intention of distributing the Notes or any
part thereof, but without prejudice to your right at all times to (I) sell or
otherwise dispose of all or any part of the Notes in compliance with the
Securities Act and (II) have control over the disposition of all of your assets
to the fullest extent required by any applicable insurance law. You understand
that the Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act or if
an exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.
6.2. SOURCE OF FUNDS.
(a) You represent, in connection with your acquisition and
holding of the Notes in the principal amount specified opposite your name in
Schedule A and solely for purposes of determining whether such acquisition is a
"prohibited transaction" (as provided for in section 406 of ERISA or section
4975 of the Code), that:
(i) no part of the funds used by you for the purchase
of such Notes directly or indirectly constitutes, or may be
deemed to be, "plan assets" (as defined in United States
Department of Labor Regulation Section 2510.3-101) ("Plan
Assets") and such Notes shall not constitute or be deemed to
be Plan Assets; or
(ii) you are an insurance company, the funds to be used by
you for the purchase of such Notes constitute the assets of an
"insurance company general account" (as such term is defined
in United States Department of Labor Prohibited Transaction
Exemption 95-60) and the purchase of such Notes meets the
requirements for such exemption; or
(iii) you are an insurance company, the funds to be used by
you for the purchase of such Notes constitute the assets of an
"insurance company pooled separate account" (as such term is
defined in United States Department of Labor Prohibited
Transaction Exemption 90-1) and the purchase of such Notes
meets the requirements for such exemption; or
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(iv) you are a bank, the funds to be used by you for the
purchase of such Notes constitute the assets of a "collective
investment fund" (as such term is defined in United States
Department of Labor Prohibited Transaction Exemption 91-38)
and the purchase of such Notes meets the requirements for such
exemption; or
(v) you are a "Qualified Professional Asset Manager" (as
such term is defined in United States Department of Labor
Prohibited Transaction Exemption 84-14) and the purchase of
such Notes meets the requirements for such exemption; or
(vi) you are an "In-House Asset Manager" (as such term is
defined in United States Department of Labor Prohibited
Transaction Exemption 96-23) and the purchase of such Notes
meets the requirements for such exemption.
(b) It is understood that, in making the representation set
out in clause (a)(ii) of this Section 6.2, if applicable, the Initial Holder is
relying on the representation of the Company set forth in Section 5.11(e).
6.3. NO BANKRUPTCY PETITION.
You hereby agree with and covenant to the Company that you
shall not commence, initiate or cause to be initiated any proceeding provided
for by any Debtor Relief Law against the Company or any property of the Company.
6.4. VOTING OF SENIOR CERTIFICATES.
You hereby agree, for the benefit of the holders from time to
time of the Senior Certificates for any Series of which a Subordinated
Certificate is a class, that as long as you or any of your Affiliates holds any
interest in a Note, you and all of your Affiliates will (at the request of any
other holder of a Senior Certificate) vote in favor of declaring that an "Early
Amortization Event" has occurred pursuant to the Pooling and Servicing Agreement
at any time at which you (and/or your Affiliates) are entitled to so vote as
holders of Senior Certificates. Any subsequent holder of a Note shall be deemed
(by its acceptance of such Note) to have agreed to vote (and to cause its
Affiliates to vote) in such manner to the extent so requested and so entitled.
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7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver or cause to be delivered to each
holder of Notes that is an Institutional Investor:
(a) COMPANY QUARTERLY STATEMENTS -- within forty-five
days after the end of each quarterly fiscal period in each fiscal year
of the Company (other than the last quarterly fiscal period of each
such fiscal year), duplicate copies of
(i) a balance sheet of the Company as at the end of such
quarter, and
(ii) statements of operations, stockholders' equity and
cash flows of the Company for such quarter and (in the case
of the second and third quarters) for the portion of the
fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the immediately preceding fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and accompanied by a
certificate signed by a principal financial officer of the Company
stating that such financial statements present fairly, in all material
respects, the financial position, results of operations and cash flows
of the Company and have been prepared in accordance with GAAP;
(b) COMPANY ANNUAL STATEMENTS -- within ninety days
after the end of each fiscal year of the Company, duplicate copies of
(i) a balance sheet of the Company as at the end of such
year, and
(ii) consolidated statements of operations, stockholders'
equity and cash flows of the Company for such year,
setting forth in each case in comparative form the figures for the
previous year and accompanied by a certificate signed by a principal
financial officer stating that such financial statements present
fairly, in all material respects, the financial position, results of
operations and cash flows of the Company and have been prepared in
accordance with GAAP;
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(c) NOTICE OF DEFAULT, PTN EVENT OF DEFAULT OR INTEREST
DEFICIENCY AND CERTAIN OTHER EVENTS -- promptly, and in any event
within five days, after a Responsible Officer becoming aware of the
existence of any Default, PTN Event of Default or Interest Deficiency
or that any Person has given any notice or taken any action with
respect to a claimed default hereunder or under the Pledge Agreement, a
written notice specifying the nature and period of existence thereof
and what action the Company is taking or proposes to take with respect
thereto and promptly, and in any event within five days, after a
Responsible Officer becoming aware of the existence of any PTN
Accumulation Event or PTN Early Amortization Event, a written notice
thereof;
(d) ERISA MATTERS -- promptly, and in any event within
five days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take
with respect thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, which could reasonably be expected to have a
Material Adverse Effect and for which notice thereof has not
been waived pursuant to such regulations as in effect on the
date hereof; or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
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(e) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company from any Federal or state Governmental Authority relating
to any order, ruling, statute or other law or regulation that could
reasonably be expected to have a Material Adverse Effect;
(f) SETTLEMENT STATEMENT AND ACCOUNT BALANCE -- copies
of "Settlement Statements" delivered by the Servicer to the Trustee
covering each Series of which a Subordinated Certificate is a class
and, so long as a PTN Accumulation Event has occurred and is
continuing, a monthly notice stating the amount of funds, if any, then
on deposit in the PTN Accumulation Account; and
(g) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
relating to the ability of the Company to perform its obligations
hereunder and under the Notes as from time to time may be reasonably
requested by any such holder of Notes.
The Company covenants to furnish or cause to be furnished
promptly upon the request of a holder of a Note, at any time when the Company is
not subject to Section 13 or 15(d) of the Exchange Act, Rule 144A Information
(as defined below) to such holder or to a prospective transferee of a Note or
interests in such Note designated by such holder, as the case may be, in
connection with the resale pursuant to Rule 144A of such Note or such interests
by such holder; PROVIDED, HOWEVER, that the Company shall not be required to
furnish such information in connection with any request made after the date
which is the earlier to occur of (a) the date three years after the later to
occur of (i) the date of the Closing and (ii) the date such Note (or any
Predecessor Note) was last acquired from an "affiliate" of the Company within
the meaning of Rule 144 or (b) the date on which the Notes have been sold
pursuant to an effective registration statement filed with the Securities and
Exchange Commission. "Rule 144A Information" shall mean the information
specified in Rule 144A(d)(4)(i) and (ii) under the Securities Act.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of
Notes pursuant to Section (a) hereof shall be accompanied by a certificate of a
Senior Financial Officer setting forth a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under his
or her supervision, a review of the transactions and conditions of the Company
from the beginning of the quarterly
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or annual period covered by the statements then being furnished to the date of
the certificate and that such review shall not have disclosed the existence
during such period of any condition or event that constitutes a Default or a PTN
Event of Default or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action the
Company shall have taken or proposes to take with respect thereto.
7.3. INSPECTION.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) NO DEFAULT -- if no Default, PTN Event of Default
or Interest Deficiency then exists, at the expense of such holder and
upon reasonable prior notice to the Company, to visit the principal
executive office of the Company, to discuss the affairs, finances and
accounts of the Company with the Company's officers, and (with the
consent of the Company, which consent will not be unreasonably
withheld) its independent public accountants, and (with the consent of
the Company, which consent will not be unreasonably withheld) to visit
the other offices and properties of the Company, all at such reasonable
times and as often as may be reasonably requested in writing; and
(b) DEFAULT -- if a Default, PTN Event of Default or
Interest Deficiency then exists, at the expense of the Company, to
visit and inspect any of the offices or properties of the Company, to
examine all their respective books of account, records, reports and
other papers, to make copies and extracts therefrom, and to discuss
their respective affairs, finances and accounts with their respective
officers and independent public accountants (and by this provision the
Company authorizes said accountants to discuss the affairs, finances
and accounts of the Company), all at such times and as often as may be
requested.
8. PREPAYMENT OF THE NOTES.
8.1. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes, in an
amount not less than $1,000,000 in the case of a partial prepayment, at 100% of
the principal amount so prepaid, plus the Make-Whole Amount determined for the
prepayment date with respect to such principal amount. The Company will give
each holder of Notes written notice of each
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optional prepayment under this Section 8.1 not less than 30 days and not more
than 60 days prior to the date fixed for such prepayment. Each such notice shall
specify such date, the aggregate principal amount of the Notes to be prepaid on
such date, the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.2), and the interest to be paid on the
prepayment date with respect to such principal amount being prepaid, and shall
be accompanied by a certificate of a Senior Financial Officer as to the
estimated Make-Whole Amount due in connection with such prepayment (calculated
as if the date of such notice were the date of the prepayment), setting forth
the details of such computation. Two Business Days prior to such prepayment, the
Company shall deliver to each holder of Notes a certificate of a Senior
Financial Officer specifying the calculation of such Make-Whole Amount as of the
specified prepayment date. Any repayment of principal of the Notes made prior to
August 29, 1999 shall be deemed to be an optional prepayment under this Section
8.1 for purposes of such Make-Whole Amount and such certificate of a Senior
Financial Officer.
8.2. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the
principal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
prepayment.
8.3. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Make-Whole Amount, if any, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and cancelled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.
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8.4. PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.5. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no
event be less than zero, and PROVIDED, FURTHER, that in calculating any
Make-Whole Amount it shall be assumed that the scheduled due date for all Called
Principal is August 29, 1999. For the purposes of determining the Make-Whole
Amount, the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.1 or
has become or been declared to be immediately due and payable pursuant
to Section 14.1, as applicable.
"DISCOUNTED VALUE" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (I)
the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "Page 678" on the
Telerate Access Service (or such other display as may replace Page 678
on Telerate Access Service) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Life of such Called
Principal as of such
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Settlement Date, or (II) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day
for which such yields have been so reported as of the second Business
Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Life of
such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (A) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (B) interpolating linearly between (1) the
actively traded U.S. Treasury security with the duration closest to and
greater than the Remaining Life and (2) the actively traded U.S.
Treasury security with the duration closest to and less than the
Remaining Life.
"REMAINING LIFE" means, with respect to any Called Principal,
the number of years (calculated to the nearest one-twelfth year) that
will elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled
Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, PROVIDED that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.1 or 14.1, as applicable.
"SETTLEMENT DATE" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.1 or has become or been declared to be
immediately due and payable pursuant to Section 14.1, as applicable.
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9. INTEREST PAYMENTS.
(a) Accrued Interest on the Notes is due and payable on each
Interest Payment Date and shall be paid in accordance with the terms of the
Pledge Agreement. If on any Interest Payment Date such accrued interest is not
paid in full (to the extent not fully paid, an "INTEREST DEFICIENCY"), such
unpaid amounts of interest shall accrue interest at the default rate specified
in the Notes and such unpaid interest and interest thereon shall be payable in
accordance with the terms of the Pledge Agreement.
(b) Notwithstanding anything to the contrary in this Agreement
or the Notes, the obligations of the Company to any holder of any Note in
respect of interest on the Notes shall be payable solely from distributions paid
to the Collateral Agent (or the Company) in respect of the Subordinated
Certificates in accordance herewith and the Collateral in accordance with the
terms hereof and of the Pledge Agreement and the holders of Notes shall not look
to any other property or assets of the Company in respect of such obligations,
and such obligations shall not constitute a claim against the Company to the
extent that such distributions and Collateral are insufficient to pay in full
such obligations.
(c) It is understood that no Default or PTN Event of Default
shall occur as a result of the failure of the Company to pay accrued interest on
the Notes unless distributions on the Subordinated Certificates or amounts on
deposit in the PTN Accumulation Account are available for the payment thereof in
accordance with the terms of the Pledge Agreement.
10. PRINCIPAL PAYMENTS.
(a) Principal on the Notes is payable by the Company on any
day on which the Collateral Agent (or the Company) receives distributions in
respect of principal on the Subordinated Certificates, whether by reason of a
distribution of Principal Collections (as defined in the Pooling and Servicing
Agreement) during an Amortization Period (as defined in the Pooling and
Servicing Agreement) pursuant to the applicable Series Supplement or by reason
of a distribution of liquidation proceeds on any Series Termination Date (as
defined in the applicable Series Supplement) pursuant to Section 12.02(c) of the
Pooling and Servicing Agreement. On any such day, the Company shall pay to the
holders of Notes pro rata an aggregate amount equal to the lesser of (x) the
amount of such distribution and (y) the aggregate amount of principal of the
Notes then outstanding. In addition, the principal of the Notes shall be repaid
as provided in the Pledge Agreement. All remaining outstanding principal of the
Notes, together with
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interest accrued and unpaid thereon, shall be due and payable on the Final
Maturity Date.
(b) Notwithstanding anything to the contrary in this Agreement
or the Notes, the obligations of the Company to any holder of any Note in
respect of principal on and Make-Whole Amount, if any, in respect of the Notes
shall be payable solely from distributions received by the Company in respect of
the Subordinated Certificates and the Collateral and the holders of Notes shall
not look to any other property or assets of the Company in respect of such
obligations, and such obligations shall not constitute a claim against the
Company to the extent that such distributions and the Collateral are
insufficient to pay in full such obligations.
11. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
11.1. COMPLIANCE WITH LAW.
The Company will comply with all laws, ordinances or
governmental rules or regulations to which it is subject and will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its business, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
11.2. PAYMENT OF TAXES AND CLAIMS.
The Company will file all tax returns required to be filed in
any jurisdiction and pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges, or levies
imposed on them or any of its properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent, and all claims for which sums have become due and
payable that have or might become a Lien on properties or assets of the Company.
11.3. CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force
and effect its corporate existence. The Company will at all times preserve and
keep in full force and effect
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all rights and franchises of the Company unless, in the good faith judgment of
the Company, the termination of or failure to preserve and keep in full force
and effect such corporate existence, right or franchise could not, individually
or in the aggregate, have a Material Adverse Effect.
11.4. SEPARATE BUSINESS.
The Company will not permit its assets to be commingled with
those of Factors, Holding or any of their Affiliates, the Company shall maintain
separate corporate records and books of account from those of Factors, Holding
and their Affiliates, and the Company shall conduct its business from an office
separate from that of Factors, Holding and their Affiliates. The Company will
conduct its business solely in its own name and will cause Factors, Holding and
their Affiliates to conduct their business solely in their own names so as not
to mislead others as to the identity with which those others are concerned. The
Company will provide for its own operating expenses and liabilities from its own
funds, except that the organizational expenses of the Company may be paid by
Holding. The Company will not hold itself out, or permit itself to be held out,
as having agreed to pay, or as being liable for, the debts of Factors, Holding
or any of their Affiliates, and the Company shall cause Factors, Holding and
their Affiliates not to hold themselves out, or permit themselves to be held
out, as having agreed to pay, or as being liable for, the debts of the Company.
The Company will maintain an arm's length relationship with Factors, Holding and
their Affiliates with respect to any transactions between the Company, on the
one hand, and Factors, Holding or their Affiliates, on the other. The Company
will not permit Factors or Holding to be involved with its "day-to-day"
management and will not provide for or allow to exist an agency relationship
between the Company and Factors or Holding, other than Factors' obligations as
Servicer under the Pooling and Servicing Agreement. The Company shall at all
times maintain at least one director who shall not be an officer, director,
employee or 10% or greater stockholder of Factors, Holding or any affiliate of
Factors or Holding, which independent director's vote shall be required for all
fundamental changes and material policy decisions of the Company, including the
filing for relief under any bankruptcy or insolvency laws. The Company's
financial statements shall reflect the separate corporate existence of the
Company. The Company will conduct its business in an independent manner so that
its assets should not be substantively consolidated with the assets, or deemed
to be part of the bankruptcy estate, of any other entity by a court adjudicating
the bankruptcy or insolvency of such other entity.
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11.5. CERTAIN CONSENTS.
The Company will cause the same consent provided for in the
consent delivered pursuant to Section 4.11 to be included in the terms of any
new series of Senior Certificates issued after the execution and delivery of
this Agreement.
12. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
12.1. TRANSACTIONS WITH AFFILIATES.
The Company will not enter into directly or indirectly any
transaction or Material group of related transactions (including without
limitation the purchase, lease, sale or exchange of properties of any kind or
the rendering of any service) with any Affiliate, except in compliance with the
Company's Certificate of Incorporation and By-Laws and upon fair and reasonable
terms no less favorable to the Company than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
12.2. MERGER, CONSOLIDATION, ETC.
The Company shall not consolidate with or merge with any other
Person or convey, transfer or lease substantially all of its assets in a single
transaction or series of transactions to any Person.
12.3. LIENS OR DISPOSALS.
The Company will not (except pursuant to the Pledge Agreement)
sell, transfer, assign, exchange, pledge or otherwise convey any Subordinated
Certificate or any interest represented thereby or any other Collateral unless
(i) each holder of a Note then outstanding shall, in its sole discretion have
consented to such transfer, assignment, exchange, pledge or conveyance and (ii)
such transfer, assignment, exchange, pledge or conveyance is in compliance with
the Subordinated Certificate Documents.
12.4. RESTRICTED PAYMENTS; INVESTMENTS.
At any time when a Default, PTN Event of Default, Interest
Deficiency, PTN Accumulation Event or PTN Amortization Event shall have occurred
and be continuing, the Company shall not (I) purchase or redeem any shares of
its capital stock, (II) declare or pay any Dividend or set aside any funds for
any such purpose (other than in shares of capital stock) or (III) lend or
advance any funds or make any other investment except in connection with a
Permitted Obligation and except
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that the Company may purchase Additional Subordinated Certificates.
12.5. INCURRENCE OF INDEBTEDNESS.
The Company shall not (I) create, incur or permit to exist,
any Indebtedness or liability or (II) cause or permit to be issued for its
account any letters of credit or bankers' acceptances, except for (W) Permitted
Obligations, (X) any Indebtedness or liabilities incurred pursuant to or in
connection with this Agreement or the Notes, (Y) indebtedness or other expense
to its professional advisors and its counsel, and (Z) other indebtedness and
expenses on account of incidentals or services supplied or furnished to the
Company in the ordinary course of its business in compliance with its
Certificate of Incorporation and By-Laws. Notwithstanding the foregoing
sentence, the Company may purchase Additional Subordinated Certificates after
the date of this Agreement pursuant to the Pooling and Servicing Agreement.
12.6. MODIFICATION OF, AND RIGHTS UNDER, CERTAIN DOCUMENTS.
The Company will not, without the consent of the Required
Holders: (I) consent to any modification, supplement or waiver of any of the
provisions of any Subordinated Certificate Document or any agreement, instrument
or other document evidencing or relating to a Permitted Obligation (except for
necessary conforming changes to the Administrative Services Agreement in
connection with a purchase of certificates permitted by Sections 12.4 and 12.5)
or (II) in its capacity as holder of a Subordinated Certificate give any other
direction to the Trustee, or (III) modify Articles THIRD, NINTH, TENTH, or
ELEVENTH of its Certificate of Incorporation or (IV) modify Articles XI or XIII
of its By-Laws.
12.7. SUBSIDIARIES.
The Company will have no Subsidiaries.
13. PTN EVENTS OF DEFAULT.
A "PTN EVENT OF DEFAULT" shall exist if any of the following
conditions or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal of
any Note when the same becomes due and payable at a date described in
Section 10 or the Notes or at a date fixed for prepayment or the
Company defaults in the payment of any Make-Whole Amount in respect of
any Note when the same becomes due and payable; or
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(b) subject to the provisions of Section 9(c), the Company
defaults in the payment of any interest on any Note for more than five
Business Days after the same becomes due and payable pursuant to
Section 9 or the Notes; or
(c) the Company defaults in the performance of or compliance
with any term contained in Sections 12.3 through 12.6; or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 13) or in the Pledge
Agreement and such default is not remedied within 30 days after the
earlier of (I) a Responsible Officer obtaining actual knowledge of such
default and (II) the Company receiving written notice of such default
from any holder of a Note (any such written notice to be identified as
a "notice of default" and to refer specifically to this paragraph (d)
of Section 13); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or the Pledge Agreement or in any writing furnished in
connection with the transactions contemplated hereby or thereby proves
to have been false or incorrect in any material respect on the date as
of which made; or
(f) the Company voluntarily seeks, consents to or acquiesces
in the benefit or benefits of any Debtor Relief Law or becomes a party
to (or is made the subject of or any of their respective property is
made the subject of) any proceeding provided for by any Debtor Relief
Law, other than as creditor or claimant, and in the event such
proceeding is involuntary, the petition instituting same is not
dismissed within 60 days of its filing; or the Transferor shall become
unable for any reason, or shall otherwise fail, to transfer "Advances"
or "Receivables" to the Trustee for the benefit of the
Certificateholders from time to time in accordance with the provisions
of the Pooling and Servicing Agreement (as such terms are defined
therein), or Capital Factors, Inc. shall become unable for any reason,
or shall otherwise fail, to sell "Advances" or "Receivables" to the
Transferor in accordance with the provisions of the Contribution and
Sale Agreement (as such terms are defined therein);
(g) a final judgment or judgments for the payment of money
aggregating in excess of $1,000,000 are rendered against the Company
and which judgments are not, within
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60 days after entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within 60 days after the expiration of
such stay; or
(h) if (I) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (II) a notice of
intent to terminate any Plan shall have been or is reasonably expected
to be filed with the PBGC or the PBGC shall have instituted proceedings
under ERISA section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings, (III) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA) under
all Plans, determined in accordance with Title IV of ERISA, shall
exceed $1,000,000, (IV) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans, (V) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or (VI) the Company
establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the
liability of the Company thereunder; and any such event or events
described in clauses (i) through (vi) above, either individually or
together with any other such event or events, could reasonably be
expected to have a Material Adverse Effect.
As used in Section 13(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
14. REMEDIES ON DEFAULT, ETC.
14.1. ACCELERATION.
(a) If a PTN Event of Default with respect to the Company
described in paragraph (f) of Section 13 has occurred at any time when no Senior
Certificates are outstanding, all the Notes then outstanding shall automatically
become immediately due and payable.
(b) If any other PTN Event of Default has occurred and is
continuing at any time when no Senior Certificates are outstanding, any holder
or holders of more than 50% in principal amount of the Notes at the time
outstanding may at
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any time at its or their option, by notice or notices to the Company, declare
all the Notes then outstanding to be immediately due and payable.
(c) If any PTN Event of Default described in paragraph (a) or
(b) of Section 13 has occurred and is continuing at any time when no Senior
Certificates are outstanding, any holder or holders of Notes at the time
outstanding affected by such PTN Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all the Notes held by
it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section
14.1, whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus all accrued and
unpaid interest thereon and the Make-Whole Amount determined in respect of such
principal amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived.
14.2. OTHER REMEDIES.
Subject to Section 6.3, if any Default or PTN Event of Default
has occurred and is continuing, and irrespective of whether any Notes have
become or have been declared immediately due and payable under Section 14.1, the
holder of any Note at the time outstanding may proceed to protect and enforce
the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, for the specific performance of any agreement contained
herein or in any Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exercise of any power granted hereby
or thereby or by law or otherwise.
14.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to paragraph (b) or (c) of Section 14.1, the holders of more than 50%
in principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (A)
the Company has paid all overdue interest on the Notes and all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (B) all PTN Events of Default and Defaults, other than non-payment of
amounts that have become
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due solely by reason of such declaration, have been cured or have been waived
pursuant to Section 19, and (C) no judgment or decree has been entered for the
payment of any monies due pursuant hereto or to the Notes. No rescission and
annulment under this Section 14.3 will extend to or affect any subsequent PTN
Event of Default or Default or impair any right consequent thereon.
14.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 17,
the Company will pay (but solely from and to the extent of distributions on the
Subordinated Certificates received by the Collateral Agent (or the Company) and
then on hand or from the Collateral) to the holder of each Note on demand such
further amount as shall be sufficient to cover all costs and expenses of such
holder incurred in any enforcement or collection under this Section 14,
including, without limitation, reasonable attorneys' fees, expenses and
disbursements.
14.5. LIMITED RECOURSE TO THE COMPANY.
Notwithstanding anything to the contrary contained in this
Agreement or the Notes, the recourse by any holder of any Note hereunder and
under such Note to the Company for payment of amounts due or obligations owed to
such holder hereunder or under such Note shall be limited solely to
distributions received by the Collateral Agent or the Company in respect of
interest or principal on the Subordinated Certificates and the Collateral, and
none of (A) the Company, (B) any Person owning, directly or indirectly, any
legal or beneficial interest in the Company, or (C) any partner, principal,
officer, controlling person, beneficiary, trustee, shareholder, employee, agent,
affiliate or director of any Person described in clause (A) or (B) above shall
be personally liable for the payment of the Note or performance of any
obligation hereunder and under the Note; PROVIDED, HOWEVER, that the foregoing
shall not impair the right of such holder to exercise or enforce any rights or
remedies in and to such distributions or the Collateral upon the occurrence of a
default in the Company's repayment obligations hereunder and under the Note, but
such rights and remedies with respect to the Subordinated Certificates shall be
exercised only in accordance with the terms of the Pledge Agreement.
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15. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
15.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
15.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $100,000, PROVIDED that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $100,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representation set forth in Section 6.2(a). The
Company will, upon the request of any proposed transferee, deliver to it an
ERISA Disclosure Document, in which case it shall be understood that, in making
the representation set forth in Section 6.2(a), such transferee shall be relying
on the representation of the Company set forth in Section 5.11(e).
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15.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED that if the holder of such Note
is, or is a nominee for, the original Purchaser or another holder of a
Note with a minimum net worth of at least $100,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Company at its own expense shall execute and deliver, in
lieu thereof, a new Note, dated and bearing interest from the date to
which interest shall have been paid on such lost, stolen, destroyed or
mutilated Note or dated the date of such lost, stolen, destroyed or
mutilated Note if no interest shall have been paid thereon.
16. PAYMENTS ON NOTES.
16.1. PLACE OF PAYMENT.
Subject to Section 16.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made
in New York, New York at the principal office of Bankers Trust Company in such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
16.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 16.1 or in such Note to
the contrary, the Company will direct the Collateral Agent to pay all sums
becoming due on such Note for principal, Make-Whole Amount, if any, and interest
by the method and at the address specified for such purpose below your name in
Schedule A, or by such other method or at such other address as you shall have
from time to time specified to the Company and the Collateral Agent in writing
29
<PAGE>
for such purpose, without the presentation or surrender of such Note or the
making of any notation thereon, except that upon written request of the Company
made concurrently with or reasonably promptly after payment or prepayment in
full of any Note, you shall surrender such Note for cancellation, reasonably
promptly after any such request, to the Company at its principal executive
office or at the place of payment most recently designated by the Company
pursuant to Section 16.1. Prior to any sale or other disposition of any Note
held by you or your nominee you will, at your election, either endorse thereon
the amount of principal paid thereon and the last date to which interest has
been paid thereon or surrender such Note to the Company in exchange for a new
Note or Notes pursuant to Section 15.2. The Company will afford the benefits of
this Section 16.2 to any Institutional Investor that is the direct or indirect
transferee of any Note purchased by you under this Agreement and that has made
the same agreement relating to such Note as you have made in this Section 16.2.
17. EXPENSES, ETC.
17.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of a special counsel) incurred by you and each holder of a Note
in connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement, the Notes or the
Pledge Agreement (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (A) the costs and expenses incurred
in enforcing or defending (or determining whether or how to enforce or defend)
any rights under this Agreement, the Notes or the Pledge Agreement or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement, the Notes or the Pledge
Agreement, or by reason of being a holder of any Note, and (B) the costs and
expenses, including financial advisors' fees, incurred in connection with the
insolvency or bankruptcy of the Company or in connection with any work-out or
restructuring of the transactions contemplated hereby and by the Notes and the
Pledge Agreement. The Company will pay, and will save you and each other holder
of a Note harmless from, all claims in respect of any fees, costs or expenses if
any, of brokers and finders (other than those retained by you).
17.2. SURVIVAL.
The obligations of the Company under this Section 17 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this
30
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Agreement, the Notes or the Pledge Agreement, and the termination of this
Agreement and the Pledge Agreement.
18. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the purchase
or transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
or the Pledge Agreement shall be deemed representations and warranties of the
Company under this Agreement. Subject to the preceding sentence, this Agreement,
the Notes and the Pledge Agreement embody the entire agreement and understanding
between you and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
19. AMENDMENT AND WAIVER.
19.1. REQUIREMENTS.
This Agreement, the Notes and the Pledge Agreement may be
amended, and the observance of any term hereof or of the Notes may be waived
(either retroactively or prospectively), with (and only with) the written
consent of the Company and the Required Holders, except that (A) no amendment or
waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 23 hereof, or any
defined term (as it is used therein), will be effective as to you unless
consented to by you in writing, and (B) no such amendment or waiver may, without
the written consent of the holder of each Note at the time outstanding affected
thereby, (I) change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (II) change the percentage
of the principal amount of the Notes the holders of which are required to
consent to any such amendment or waiver, or (III) amend any of Sections 8, 9,
10, 13(a), 13(b), 14, 19 or 22.
19.2. SOLICITATION OF HOLDERS OF NOTES.
(a) SOLICITATION. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any
31
<PAGE>
of the provisions hereof or of the Notes. The Company will deliver executed or
true and correct copies of each amendment, waiver or consent effected pursuant
to the provisions of this Section 19 to each holder of outstanding Notes
promptly following the date on which it is executed and delivered by, or
receives the consent or approval of, the requisite holders of Notes.
(b) PAYMENT. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder of
Notes as consideration for or as an inducement to the entering into by any
holder of Notes of any waiver or amendment of any of the terms and provisions
hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
19.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this
Section 19 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon the Company without regard to
whether such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default, PTN Event of Default or Interest Deficiency not expressly
amended or waived or impair any right consequent thereon. No course of dealing
between the Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note. As used herein, the term "THIS AGREEMENT" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
19.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement, the Notes or the Pledge Agreement, or have directed
the taking of any action provided herein or in the Notes to be taken upon the
direction of the holders of a specified percentage of the aggregate principal
amount of Notes then outstanding, Notes directly or indirectly owned by the
Company or any of its Affiliates shall be deemed not to be outstanding.
32
<PAGE>
20. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (A) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (C) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications in Schedule A,
or at such other address as you or it shall have
specified to the Company in writing,
(ii) if to any other holder of any Note, to such
holder at such address as such other holder shall have
specified to the Company in writing, or
(iii) if to the Company, to the Company at
P.O. Box 407155, Fort Lauderdale, Florida 33340-7155, telecopy
no.: 954-497-3136, to the attention of the President, or
at such other address as the Company shall have specified
to the holder of each Note in writing.
Notices under this Section 20 will be deemed given only when actually received.
21. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (A) consents, waivers and modifications that may hereafter
be executed, (B) documents received by you at the Closing (except the Notes
themselves), and (C) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 21
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
33
<PAGE>
22. CONFIDENTIAL INFORMATION.
You agree that any information furnished to you by or on
behalf of the Company in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
you as being confidential information of the Company or an Affiliate of the
Company will be held in confidence and not disclosed, all in accordance with and
pursuant to your current procedures and practices for maintaining the
confidentiality of similar "confidential" information (provided that such
information neither (y) was previously publicly known, or otherwise known to
you, at the time of disclosure nor (z) subsequently became publicly known other
than through any act or omission by you), provided that you may disclose the
aforesaid information (i) to your officers, directors, trustees, internal
counsel, internal investment advisers and employees (and the officers,
directors, trustees, internal counsel, internal investment advisers and
employees of any parent or holding company, if any, and of any other of your
affiliates) in the ordinary course of their duties; (ii) when required by law or
regulation or to the extent necessary to comply with any summons, subpoena or
notice of discovery or in connection with any litigation or legal proceeding or
in connection with any formal or informal governmental investigative demand;
(iii) to the extent necessary to comply with the request of, or as otherwise
customarily disclosed to, any regulatory body having (or claiming to have)
jurisdiction over you, to the United States National Association of Insurance
Commissioners or similar organizations or their successors; (iv) to your
independent auditors and accountants, counsel and other professional advisers
(or the independent auditors and accountants, counsel and other professional
advisers of your parent or holding company, if any, and of any other of your
affiliates) in the ordinary course of their respective duties, provided that
they consent to the provisions of this Section; (v) as may be required or
appropriate in connection with (a) the enforcement of your rights under the
Notes and this Agreement or (b) any contemplated transfer of any Notes owned by
you (provided that any potential transferee agrees to be bound by the provisions
of this Section); and (vi) to any other holder of a Note or the Collateral
Agent.
23. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed by
both you and such Affiliate, shall contain such Affiliate's agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
34
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the accuracy with respect to it of the representations set forth in Section 6.
Upon receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this Section 23), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so substituted as
a purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 23), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
24. MISCELLANEOUS.
24.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
24.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
24.3. SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
24.4. CONSTRUCTION.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
35
<PAGE>
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
24.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
24.6. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of New York excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
* * * * *
36
<PAGE>
If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding agreement
between you and the Company.
Very truly yours,
CF ONE, INC.
By /s/ J. Michael Stanley
-------------------------
Name: J. Michael Stanley
Title: SR. VICE PRESIDENT
The foregoing is hereby
agreed to as of the
date thereof.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By CIGNA Investments, Inc.
By /s/ Keith A. Gollenberg
-------------------------
Name: KEITH A. GOLLENBERG
Title: VICE PRESIDENT
37
Exhibit 10.19
EXECUTION COPY
===============================================================================
COLLATERAL PLEDGE AND ACCOUNT AGREEMENT
Dated as of May 15, 1996
among
CF ONE, INC.
and
BANKERS TRUST COMPANY
as Collateral Agent
and the
INITIAL HOLDER NAMED HEREIN
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
ss.1. Definitions. ................................................ 1
ss.2. The Pledge.................................................... 5
ss.3. Accounts...................................................... 5
ss.3.01. Payment Account................................... 5
ss.3.02. PTN Accumulation Account.......................... 6
ss.4. Distributions from Accounts................................... 6
ss.4.01. Distributions....................................... 6
ss.4.02. Release............................................. 7
ss.4.03. Determinations...................................... 7
ss.5. Collateral.................................................... 8
ss.5.01. Other Financing Statement and Liens................. 8
ss.5.02. Voting.............................................. 8
ss.5.03. Remedies Upon PTN Event of Default, Etc............. 8
ss.5.04. Certain Agreements.................................. 9
ss.5.05. Private Sale........................................ 10
ss.5.06. Attorney-in-Fact.................................... 10
ss.5.07. Perfection.......................................... 10
ss.5.08. Termination......................................... 10
ss.5.09. Further Assurances.................................. 10
ss.6. Investments in the PTN Accumulation Account. ................. 11
ss.7. Application of Proceeds....................................... 11
ss.8. Appointment and Duties of Collateral Agent.................... 13
ss.9. Rights of the Collateral Agent................................ 14
ss.10. Indemnification and Fees...................................... 17
ss.11. Resignation or Removal of the Collateral Agent............... 17
ss.12. Severability................................................. 18
ss.13. Successors and Assigns....................................... 18
ss.14. Counterparts................................................. 18
ss.15. Amendment; Waiver, Etc....................................... 19
- i -
<PAGE>
PAGE
ss.16. Headings................................................ 19
ss.17. Termination............................................. 19
ss.18. Governing Law........................................... 19
ss.19. Notices................................................. 19
ss.20. No Bankruptcy Petition.................................. 20
- ii -
<PAGE>
COLLATERAL PLEDGE AND ACCOUNT AGREEMENT
COLLATERAL PLEDGE AND ACCOUNT AGREEMENT (as modified and
supplemented and in effect from time to time, this "AGREEMENT"), dated as of May
15, 1996, among CF ONE, INC., incorporated under the laws of the State of
Delaware (the "COMPANY"), CONNECTICUT GENERAL LIFE INSURANCE COMPANY (the
"INITIAL HOLDER"), and BANKERS TRUST COMPANY, as collateral agent for the
holders from time to time (collectively, the "HOLDERS") of the Notes referred to
below (in such capacity, together with its successors in such capacity, the
"COLLATERAL AGENT").
The Company and the Initial Holder are parties to a Note
Purchase Agreement dated as of May 15, 1996 (as amended, modified and
supplemented and in effect from time to time, the "NOTE AGREEMENT") providing,
subject to the terms and conditions thereof, for the issuance and sale by the
Company and the purchase by the Initial Holder, of the Company's 7.95% Pay-
Through Notes due July 2001 in an original aggregate principal amount of
U.S.$10,000,000 (such notes and all notes delivered in substitution or exchange
for such notes pursuant to the Note Agreement, being hereinafter referred to as
the "NOTES").
The parties hereto desire to enter into this Agreement to
provide certain collateral for the Notes and to provide for the establishment
and operation of the Accounts (as defined below) and the appointment of the
Collateral Agent.
NOW, THEREFORE, for and in consideration of the premises and
covenants herein contained, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
ss.1. Definitions.
Unless otherwise stated, capitalized terms used herein and not
defined herein shall have the meanings assigned thereto in the Note Agreement.
In addition, as used herein:
"ACCOUNTS" shall mean the Payment Account and the PTN
Accumulation Account.
"COLLATERAL" shall have the meaning stated in Section 2
hereof.
"DETERMINATION DATE" shall have the meaning ascribed to such
term in the Pooling and Servicing Agreement.
"ELIGIBLE BUYER" means, with respect to any Transfer, each of
the following Persons: a Person who at the time of such Transfer is a registered
holder of a Senior Certificate (or, if held in nominee name, the principal for
whom such Senior Certificate is held), Connecticut General Life Insurance
Company,
<PAGE>
2
John Hancock Mutual Life Insurance Co., Northwestern Mutual Life Insurance
Company, Principal Mutual Life Insurance Company, The Prudential Insurance
Company of America and Teachers Insurance & Annuity Association of America, so
long as at the time of such Transfer such Person has a long term unsecured debt
rating of AA or higher from Standard & Poor's Ratings Group ("S&P") or Aa or
higher from Moody's Investors Service, Inc. ("Moody's") (or, if such Person has
no long term unsecured debt rating, an insurance claims-paying rating of AA+ or
higher from S&P or Aa1 or higher from Moody's) and the Company shall have
obtained from the appropriate Rating Agencies confirmation that such Transfer to
such Person (or to a nominee therefor) will not result in a reduction or
withdrawal of the rating of any outstanding Subordinated Certificates or Senior
Certificates of any Series.
"ELIGIBLE INVESTMENTS" means: (a) negotiable instruments or
securities represented by instruments in bearer or registered form which
evidence (i) direct obligations of, or obligations fully guaranteed as to timely
payment by, the United States of America or its agencies; (ii) certificates of
deposit of, or bankers' acceptances (having original maturities of not more than
30 days) issued by, any depository institution or trust company which is subject
to supervision and examination by federal or state banking or depository
institution authorities; PROVIDED, HOWEVER, that at the time of the Collateral
Agent's investment or contractual commitment to invest therein, such depository
institution or trust company shall have a commercial paper credit rating, if
any, and a long-term unsecured debt obligation (other than such obligations
whose rating is based on the credit of a Person other than such institution or
trust company) rating in the second highest rating category from the Rating
Agencies; (iii) commercial paper (having original maturities of not more than 30
days) having, at the time of the Collateral Agent's investment or contractual
commitment to invest therein, a short-term rating in the second highest rating
category from the Rating Agencies; (iv) investments in money market funds that
redeem their shares on demand, invest only in other Eligible Investments and
have a long-term rating in the second highest rating category from the Rating
Agencies; (v) Eurodollar time deposits having, at the time of the investment or
contractual commitment to invest therein, a short- term rating in the second
highest rating category from the Rating Agencies; (vi) repurchase agreements
involving the above-listed investments so long as the other party thereto has at
the time of the Collateral Agent's investment or contractual commitment to
invest therein, a short-term rating in the second highest rating category from
the Rating Agencies; (vii) any other investment acceptable to the Required
Holders and (b) demand deposits or time deposits in the name of the Collateral
Agent in any depository institution or trust company referred to in (a)(ii)
above.
<PAGE>
3
"EXISTING SERIES" shall mean any of the series of Senior
Certificates issued pursuant to one of the Existing Series Supplements.
"EXISTING SERIES SUPPLEMENTS" shall mean the Series 1994-1
Supplement, the Series 1994-2 Supplement and the Series 1995-1 Supplement.
"INTEREST PAYMENT DATE" shall mean the 15th day of each month
(or if such day is not a Business Day, the next succeeding Business Day),
commencing June 17, 1996.
"PAYMENT ACCOUNT" is defined in ss.3.01 hereof.
"PTN ACCUMULATION ACCOUNT" is defined in ss.3.02 hereof.
"PTN ACCUMULATION CONTINUATION EVENT" shall mean, on any
Business Day, with respect to a PTN Accumulation Event that by definition occurs
only on a Determination Date, that such PTN Accumulation Event would occur on
such Business Day but for the fact that such Business Day is not a Determination
Date.
"PTN ACCUMULATION EVENT" shall mean (I) any event or series of
events defined as an "Accumulation Event" in any of the Existing Series
Supplements as in effect on the date hereof and without giving effect to any
subsequent amendment, waiver or other modification thereof (other than any such
amendment, waiver or modification consented to by the Required Holders), or (II)
the "Subordinated Invested Amount" for any Existing Series equals less than 14%
of the "Senior Invested Amount" for such Existing Series on any Determination
Date.
"PTN EARLY AMORTIZATION EVENT" shall mean (I) any event or
series of events described in any of Section 9.01 of the Pooling and Servicing
Agreement, Section 12 of the Series 1994-1 Series Supplement, Section 12 of the
Series 1994-2 Supplement or Section 12 of the Series 1995-1 Supplement, in each
case as in effect on the date hereof (as modified by any subsequent amendment,
waiver or modification thereof consented to by the Required Holders), which
event or series of events either (a) constitutes an "Early Amortization Event"
for any Existing Series, (b) but for any subsequent amendment, waiver or
modification thereof that was not consented to by the Required Holders, would
constitute an "Early Amortization Event" for any Existing Series, or (c) but for
the failure of the Trustee or the "Majority Certificateholders" for any Existing
Series to declare that such event or series of events constitutes an "Early
Amortization Event" for such Existing Series (so long as the Required Holders
declare that such event or series of events constitutes a PTN Early Amortization
Event), would constitute an "Early Amortization Event" for such Existing Series,
it being understood that (i) no such event or series of events shall constitute
a PTN Early Amortization Event prior to the earliest
<PAGE>
4
date as of which such event or series of events either (x) constitutes, (y)
would have constituted (absent any such amendment, waiver or modification), or
(z) would upon such declaration constitute, an "Early Amortization Event" for
any Existing Series, and (ii) for purposes of this definition there shall be
deemed to be outstanding at all times at least one Senior Certificate of each
Existing Series, or (II) the Subordinated Invested Amount for any Existing
Series equals (a) less than 14% of the "Senior Invested Amount" for such
Existing Series for any three consecutive Determination Dates or (b) less than
11% of the "Senior Invested Amount" for such Existing Series on any
Determination Date.
"PTN EVENT OF DEFAULT" means a PTN Event of Default as defined
in the Note Agreement.
"RATING AGENCIES" means the nationally recognized rating
agency or rating agencies, if any, that rated the Senior Certificates in each
Series of Subordinated Certificates.
"REQUIRED HOLDERS" means, at any time, the holders of at least
66-2/3% in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company or any of its Affiliates).
"RESPONSIBLE OFFICER" when used with respect to the Collateral
Agent shall mean any officer within the corporate trust and agency group (or any
successor group of the Collateral Agent) including any Managing Director, Vice
President, Assistant Vice President, Assistant Treasurer, Assistant Secretary or
any other officer or assistant officer of the Collateral Agent customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to whom any corporate trust or agency
matter is referred at the Collateral Agent's corporate trust and agency group
because of his knowledge of and familiarity with the particular subject.
"SECURED OBLIGATIONS" shall mean all amounts payable by the
Company under the Notes, the Note Agreement and this Agreement.
"SERVICER" shall have the meaning ascribed to such term in the
Pooling and Servicing Agreement.
"TRANSFER" is defined in ss.5.04(a) hereof.
The Collateral Agent is not a party to the Note Purchase
Agreement or the Notes. The rights, duties and obligations of the Collateral
Agent hereunder shall not be affected by any amendment to such documents unless
the Collateral Agent shall have been specifically advised of such amendment and
no such amendment shall impose any additional duties or obligations on the
Collateral Agent or limit any of the
<PAGE>
5
Collateral Agent's rights without the written consent of the Collateral Agent
thereto.
ss.2. THE PLEDGE. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, the Company hereby pledges and grants to
the Collateral Agent, for the benefit of the holders and the Collateral Agent, a
security interest in all of the Company's right, title and interest in and to
the following property, whether now owned by the Company or hereafter acquired
and whether now existing or hereafter coming into existence (all being
collectively referred to herein as "COLLATERAL"):
(a) all of its interest in, to and under the
Subordinated Certificates;
(b) the Payment Account and all balances and Eligible
Investments therein;
(c) the PTN Accumulation Account and all balances and
Eligible Investments therein; and
(d) all proceeds, products, offspring, rents or profits of and
to any of the property of the Company described in the preceding
clauses of this Section 2 (including, without limitation, all causes of
action, claims and warranties now or hereafter held by the Company in
respect of any of the items listed above) and, to the extent related to
any property described in said clauses or such proceeds, all books,
correspondence, credit files, records, invoices and other papers.
ss.3. ACCOUNTS.
ss.3.01. PAYMENT ACCOUNT. There is hereby established a
special purpose non-interest bearing account (Account No. 20403) at the
Collateral Agent designated as "Bankers Trust Company, as Collateral Agent -- CF
One Payment Account" (the "PAYMENT ACCOUNT") over which the Collateral Agent
shall have sole and exclusive control and sole and exclusive right of withdrawal
and into which payments due to the Company under the Subordinated Certificates
and all cash proceeds of any collection or other realization of all or any part
of the Collateral pursuant to this Agreement shall be deposited. All right,
title and interest in and to the cash amounts on deposit from time to time in
the Payment Account shall constitute part of the Collateral and shall be held
for the benefit of the holders, the Collateral Agent, and the Company as their
interests shall appear hereunder and shall not constitute payment of the Notes
(or any other obligations to which such funds are provided hereunder to be
applied) until applied thereto as hereinafter provided.
<PAGE>
6
ss.3.02. PTN ACCUMULATION ACCOUNT. There is hereby established
a special purpose non-interest bearing account (Account No. 20404) at the
Collateral Agent designated as "Bankers Trust Company, as Collateral Agent -- CF
One PTN Accumulation Account" (the "PTN ACCUMULATION ACCOUNT") over which the
Collateral Agent shall have sole and exclusive control and sole and exclusive
right of withdrawal. The characterization of the PTN Accumulation Account as
"non-interest bearing" shall not derogate from the obligations of the Collateral
Agent to invest funds on deposit therein in Eligible Investments pursuant to
Section 6. All right, title and interest in and to the cash amounts on deposit
from time to time in the PTN Accumulation Account shall constitute part of the
Collateral and shall be held for the benefit of the holders, the Collateral
Agent, and the Company as their interests shall appear hereunder and shall not
constitute payment of the Notes (or any other obligations to which such funds
are provided hereunder to be applied) until applied thereto as hereinafter
provided.
ss.4. DISTRIBUTIONS FROM ACCOUNTS.
ss.4.01. DISTRIBUTIONS. On each day on which the Collateral
Agent receives into the Payment Account a payment of principal or interest on
the Subordinated Certificates (a "SUBORDINATED PAYMENT") and on each Interest
Payment Date, the Collateral Agent, shall pay, deposit or apply (as the case may
be) such Subordinated Payment, if any, and any amounts on deposit in the PTN
Accumulation Account as follows:
(i) as long as no PTN Accumulation Event, PTN Early
Amortization Event or PTN Event of Default shall have occurred and be
continuing:
FIRST, to the payment of accrued interest due and
payable on the Notes pursuant to the Notes and Section 9 of
the Note Purchase Agreement;
SECOND, to the payment of principal due and payable
under the Notes pursuant to the Notes and Section 10 of the
Note Purchase Agreement; and
THIRD, to the Company;
(ii) if any PTN Accumulation Event shall have occurred and be
continuing (and, if such PTN Accumulation Event was caused by the
occurrence on any one Determination Date of an event described in
clause (x) of Section 12(a) of the Series 1994-1 Supplement or Series
1995-1 Supplement or clause (f) or (g) of the definition of
"Accumulation Event" in Section 14 of the Series 1994-2 Supplement, a
PTN Accumulation Continuation Event also shall be continuing with
respect to such PTN Accumulation Event), but no
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7
PTN Early Amortization Event or PTN Event of Default shall exist:
FIRST, to the payment of accrued interest due and
payable on the Notes pursuant to the Notes and Section 9 of
the Note Purchase Agreement;
SECOND, to the payment of principal due and payable
under the Notes pursuant to the Notes and Section 10 of the
Note Purchase Agreement; and
THIRD, deposit into the PTN Accumulation Account
the remainder, if any; and
(iii) if any PTN Early Amortization Event shall have occurred
and be continuing or the Notes shall have become immediately due and
payable as a result of a PTN Event of Default, in the same priority as
that set forth in Section 7 hereof (without giving effect to the
introductory language in Section 7).
ss.4.02. RELEASE. If on any of the three immediately
succeeding Determination Dates after the date on which a PTN Accumulation Event
shall have occurred, such PTN Accumulation Event shall not be continuing, no
other PTN Accumulation Event shall have occurred and be continuing and so long
as no PTN Early Amortization Event or PTN Event of Default exists, the
Collateral Agent shall withdraw all amounts on deposit in the PTN Accumulation
Account and pay such amounts to the Company.
ss.4.03. DETERMINATIONS. In making any determination required
by ss.4.01 or ss.4.02, the Collateral Agent shall rely solely and conclusively
on the most recent of the Servicer's "Settlement Statements" and "Daily Reports"
prepared pursuant to the Pooling and Servicing Agreement (as such terms are
defined therein) and delivered to the Collateral Agent and on the written
notices delivered to it pursuant to ss.4.04.
ss.4.04. CERTAIN NOTICES, ETC. The Company shall use its best
efforts to notify the Collateral Agent, in advance of the receipt by the
Collateral Agent of any payment to be distributed pursuant to ss.4.01, of the
anticipated date and amount of such payment and the amounts of principal and
interest and other obligations to which such payment is to be applied. The
Collateral Agent may (but shall have no obligation to) apply such payment in
accordance with ss.4.01 unless and until it receives such a notice from the
Company with respect thereto, provided that if the Collateral Agent receives any
payment hereunder with respect to which it has not received such a notice, it
will as promptly as practicable notify the Company and the holders of such
payment and request that the Company deliver the notice with respect thereto
contemplated by this ss.4.04. If the Company shall not deliver such a notice to
the Collateral Agent in response to
<PAGE>
8
such request and the Collateral Agent has not applied such payment in accordance
with ss.4.01, the Collateral Agent shall apply such payment as directed by the
Required Holders.
ss.4.05. TIMING OF PAYMENTS. Notwithstanding anything herein
to the contrary, if the Collateral Agent receives any payment to be distributed
or applied pursuant to ss.4.01 after 1 p.m. (New York City time) on any day, the
Collateral Agent shall have no obligation to distribute or apply such payment
until the following Business Day (provided that the Collateral Agent shall in
all events use commercially reasonable efforts to distribute or apply all
payments as promptly as practicable).
ss.5. COLLATERAL.
ss.5.01. OTHER FINANCING STATEMENT AND LIENS. The Company
represents and warrants to the holders and the Collateral Agent that the Company
is the sole beneficial and legal owner of the Collateral and no Lien exists or
will exist upon the Collateral at any time (and no right or option to acquire
the same exists in favor of any other Person), except for the pledge and
security interest in favor of the Collateral Agent created hereunder, which
pledge and security interest constitute a first priority perfected pledge and
security interest in and to all of the Collateral. Without the prior written
consent of the Collateral Agent, the Company shall not file or suffer to be on
file, or authorize or permit to be filed or to be on file, in any jurisdiction,
any financing statement or like instrument with respect to the Collateral in
which the Collateral Agent is not named as the sole secured party.
ss.5.02. VOTING. So long as no PTN Event of Default shall have
occurred and be continuing, the Company shall have the right, subject to Section
12.6 of the Note Agreement, to exercise all voting, consensual and other powers
of ownership pertaining to the Collateral for all purposes not inconsistent with
the terms of this Agreement, the Note Agreement and the Notes.
ss.5.03. REMEDIES UPON PTN EVENT OF DEFAULT, ETC. During
the period during which a PTN Event of Default shall have occurred and be
continuing:
(a) subject to the provisions of ss.5.04 hereof, the
Collateral Agent shall have all of the rights and remedies with respect to the
Collateral of a secured party under the Uniform Commercial Code (whether or not
said Code is in effect in the jurisdiction where the rights and remedies are
asserted) and such additional rights and remedies to which a secured party is
entitled under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation, the right, to
the maximum extent permitted by law, to exercise all voting, consensual and
other powers of ownership pertaining to the Collateral as if the Collateral
Agent were the
<PAGE>
9
sole and absolute owner thereof (and the Company agrees to take all such action
as may be appropriate to give effect to such right);
(b) the Collateral Agent may, and shall at the written
direction of the Required Holders, in its name or in the name of the Company or
otherwise, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of or in exchange for any of the Collateral;
and
(c) subject to the provisions of ss.5.04 below, the Collateral
Agent may, and shall at the written direction of the Required Holders, upon ten
business days' prior written notice to the Company of the time and place, with
respect to the Collateral or any part thereof that shall then be or shall
thereafter come into the possession, custody or control of the Collateral Agent
or any of its agents, sell, lease, assign or otherwise dispose of all or any
part of such Collateral, at such place or places as the Collateral Agent deems
best, and for cash or for credit or for future delivery (without thereby
assuming any credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such disposition or of the time
or place thereof (except such notice as is required above or by applicable
statute and cannot be waived), and the Collateral Agent or anyone else may be
the purchaser, lessee, assignee or recipient of any or all of the Collateral so
disposed of at any public sale (or, to the extent permitted by law, at any
private sale) and thereafter hold the same absolutely, free from any claim or
right of whatsoever kind, including any right or equity of redemption (statutory
or otherwise), of the Company, any such demand, notice and right or equity being
hereby expressly waived and released. The Collateral Agent may, without notice
or publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the sale may be so
adjourned. The proceeds of each collection, sale or other disposition under this
Section 5.03 shall be applied in accordance with Section 7 hereof.
ss.5.04. CERTAIN AGREEMENTS. The Collateral Agent and the
holders hereby agree that, notwithstanding anything contained in ss.5.03 hereof
or under applicable law to the contrary:
(a) no Subordinated Certificate or any interest therein shall
be sold, transferred, assigned, exchanged, pledged or otherwise conveyed by the
Collateral Agent or any holder (a "TRANSFER") to any Person other than an
Eligible Buyer;
(b) prior to any Transfer of any Subordinated Certificate or
any interest therein the holders shall have offered, at least ten Business Days
prior to such Transfer, to sell to the Company (or such other Person as the
Company shall
<PAGE>
10
designate) all of the Notes for a purchase price equal to the aggregate unpaid
principal amount thereof plus all accrued and unpaid interest thereon; and
(c) the Collateral Agent will not Transfer a Subordinated
Certificate unless each holder of a Note shall have consented thereto in
writing.
ss.5.05. PRIVATE SALE. Neither the Collateral Agent nor any of
the holders shall incur any liability as a result of the sale of the Collateral,
or any part thereof, at any private sale to an Eligible Buyer pursuant to
ss.5.03 hereof conducted in a commercially reasonable manner. The Company hereby
waives any claims against the Collateral Agent and the holders arising by reason
of the fact that the price at which the Collateral may have been sold at such a
private sale was less than the price that might have been obtained at a public
sale or was less than the aggregate amount of the Secured Obligations.
ss.5.06. ATTORNEY-IN-FACT. Without limiting any rights or
powers granted by this Agreement to the Collateral Agent or the holders while no
PTN Event of Default has occurred and is continuing, upon the occurrence and
during the continuance of any PTN Event of Default the Collateral Agent is
hereby appointed the attorney-in-fact of the Company for the purpose of carrying
out the provisions of this ss.5 and taking any action and executing any
instruments that the Collateral Agent may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest.
ss.5.07. PERFECTION. Prior to or concurrently with the
execution and delivery of this Agreement, the Company shall deliver to the
Collateral Agent all Existing Subordinated Certificates (and shall, upon receipt
of any Additional Subordinated Certificate, deliver the same to the Collateral
Agent), in each case accompanied by undated transfer power duly executed in
blank.
ss.5.08. TERMINATION. When all Secured Obligations shall have
been paid in full, this Agreement shall terminate, and the Collateral Agent
shall forthwith cause to be assigned, transferred and delivered, against receipt
but without any recourse, warranty or representation whatsoever, any remaining
Collateral and money received in respect thereof, to or on the order of the
Company and shall direct the Trustee to make all payments due under the
Subordinated Certificates so returned to the Company to such account of the
Company as the Company shall direct the Trustee.
ss.5.09. FURTHER ASSURANCES. The Company agrees that, from
time to time upon the written request of the Collateral Agent, the Company will
execute and deliver such further documents and do such other acts and things as
the Collateral
<PAGE>
11
Agent may reasonably request in order fully to effect the purposes of this
Agreement.
ss.6. INVESTMENTS IN THE PTN ACCUMULATION ACCOUNT.
(a) Amounts on deposit in the PTN Accumulation Account shall
be invested and re-invested from time to time in such Eligible Investments as
the Company shall timely direct the Collateral Agent in writing, which Eligible
Investments shall be held in the name and be under the control of the Collateral
Agent and shall mature no later than the next succeeding Interest Payment Date.
(b) Any income received by, or on behalf of, the Collateral
Agent with respect to the balance from time to time on deposit in the PTN
Accumulation Account, including any interest or capital gains on Eligible
Investments made with amounts on deposit therein, shall remain, or be deposited,
in such Account until transferred or paid in accordance with this Agreement. All
right, title and interest in and to the cash amounts on deposit from time to
time in the PTN Accumulation Account, together with any Eligible Investments
from time to time made pursuant to this Section shall constitute part of the
Collateral and shall be held for the benefit of the holders of the Notes, the
Collateral Agent and the Company as their interests shall appear hereunder and
shall not constitute payment of the Notes (or any other obligations to which
such funds are provided hereunder to be applied) until applied thereto as
hereinafter provided.
(c) If immediately available cash on deposit in the PTN
Accumulation Account is not sufficient to make any distribution or application
referred to in ss.4 or ss.7, the Collateral Agent shall (unless directed by the
Required Holders) liquidate as promptly as practicable Eligible Investments made
with amounts on deposit in the PTN Accumulation Account as required to obtain
sufficient cash to make such distribution or application and, notwithstanding
any other provision of this Agreement, such distribution or application shall
not be made until such liquidation has taken place.
ss.7. APPLICATION OF PROCEEDS. Except as otherwise expressly
provided herein, the proceeds of any collection, sale or other realization of
all or any part of the Collateral pursuant hereto and any other cash at the time
held by the Collateral Agent under this ss.7 shall be applied by the Collateral
Agent in the following order at the date or dates fixed by the Collateral Agent:
FIRST, to the Collateral Agent in an amount equal to the
Collateral Agent's fees (including, without limitation, the costs and
expenses of a collection, sale or other realization of all or any part
of the Collateral hereunder and the reasonable fees and expenses of the
Collateral
<PAGE>
12
Agent's agents and counsel) which are unpaid as of such
date, but only to the extent such aggregate unpaid fees and expenses do
not exceed $1,000,000, and to any holder which has theretofore advanced
or paid any such Collateral Agent's reasonable fees or expenses in an
amount equal to the amount thereof so advanced or paid by such holder
prior to such date, but only to the extent such aggregate unpaid
advances or payments by all holders do not exceed $1,000,000; PROVIDED,
that nothing herein is intended to relieve the Company of its
obligations to pay such Collateral Agent's reasonable fees or expenses
or to obligate any holder to so advance or pay any such amounts;
SECOND, to the holders of the Notes in an amount equal to
accrued and unpaid interest on the Notes, whether or not then due and
payable, and, in case such proceeds shall be insufficient to pay in
full such interest, then to the payment thereof ratably (without
priority of any one over any other) to each holder of a Note in
proportion to the unpaid amounts thereof on the relevant date;
THIRD, to the holders of the Notes in an amount equal to the
unpaid principal of the Notes, whether or not then due and payable,
and, in case such proceeds shall be insufficient to pay in full such
principal, then to the payment thereof ratably (without priority of any
one over any other) to each holder of a Note in proportion to the
unpaid amounts thereof on the relevant date;
FOURTH, to the holder in an amount equal to the costs and
expenses of and all other amounts due to the holders and their
representatives (including any Make-Whole Amount) which are payable by
the Company to the holders under the Notes, the Note Agreement or
hereunder and, in case such proceeds shall be insufficient to pay in
full such amounts, then to the payment thereof ratably (without
priority of any one over any other) to each of the holders in
proportion to the unpaid amounts due such holder on the relevant date;
FIFTH, to the Collateral Agent in an amount equal to the
Collateral Agent's fees (including, without limitation, the costs and
expenses of a collection, sale or other realization of all or any part
of the Collateral hereunder and the reasonable fees and expenses of the
Collateral Agent's agents and counsel) which are unpaid as of such date
after application of clause FIRST above, and to any holder which has
theretofore advanced or paid any such Collateral Agent's reasonable
fees or expenses in an amount equal to the amount thereof so advanced
or paid by such holder prior to such date to the extent such holder was
not reimbursed pursuant to clause FIRST above; PROVIDED, that nothing
herein is intended to relieve the Company of its obligations to pay
such Collateral Agent's reasonable fees or expenses
<PAGE>
13
or to obligate any holder to so advance or pay any such amounts; and
SIXTH, after payment in full of all Secured Obligations, any
surplus then remaining shall be paid to the Company or its successors
or assigns, or to whomever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
As used in this ss.7, "PROCEEDS" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any thereof received under any reorganization,
liquidation, or adjustment of debt of the Company or of any issuer of or obligor
on any of the Collateral.
ss.8. APPOINTMENT AND DUTIES OF COLLATERAL AGENT.
(a) The Initial Holder hereby, and each other holder from time
to time by its acceptance of a Note and the security interests granted under
this Agreement, hereby designates and appoints Bankers Trust Company to act as
the Collateral Agent hereunder, and hereby authorizes Bankers Trust Company, as
the Collateral Agent, to execute, deliver and perform this Agreement and to take
such actions on behalf of the holders under this Agreement and to exercise such
powers and perform such duties as are expressly delegated to the Collateral
Agent by the terms hereof, together with such other powers as are reasonably
incidental thereto. Notwithstanding anything to the contrary, the Collateral
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any holder, and no implied
covenants, functions or responsibilities shall be read into this Agreement or
otherwise exist against the Collateral Agent. The Collateral Agent shall not be
liable for any action taken or omitted to be taken by it hereunder, or in
connection therewith, or in connection with the Collateral, unless caused by its
negligence or willful misconduct.
(b) Without the prior written consent of the Required Holders
(or in the case of the items specified in the proviso in ss.15, of each of the
holders of a Note), the Collateral Agent will not consent to any modification,
supplement or waiver hereunder; PROVIDED, that without the prior written consent
of each holder, the Collateral Agent shall not (i) release any Collateral or
otherwise terminate any security interest granted or created hereunder or (ii)
consent to any Lien on any of the Collateral securing obligations other than
Secured Obligations. It is expressly understood that no transfer of funds from
the PTN Accumulation Account or the Payment Account to the Company permitted
under the terms of this Agreement shall constitute a release of Collateral
within the meaning of this ss.8(b).
<PAGE>
14
(c) The Collateral Agent will give notice to the holders of
any action taken hereunder (other than any ministerial or other actions taken in
the ordinary course of the administration or performance of this Agreement);
such notice shall be given prior to the taking of such action unless the
Collateral Agent determines that to do so would be detrimental to the interests
of the holders, in which event such notice shall be given promptly after the
taking of such action.
(d) The Collateral Agent will forward to each holder promptly
after the Collateral Agent's receipt thereof (and will use its best efforts to
forward within two Business Days of such receipt), (i) a copy of each document
furnished to the Collateral Agent for such holder hereunder and (ii) any notice
or certificate delivered to the Collateral Agent hereunder, in each case not
including the "Settlement Statements" and "Daily Reports" referred to in ss.4.03
or the notices referred to in ss.4.04.
(e) Except for action expressly agreed to by the Collateral
Agent hereunder, the Collateral Agent shall not take any action hereunder unless
it shall have been directed in writing to do so by the Required Holders.
(f) The Collateral Agent hereby waives any Lien it may now
have or subsequently acquire in or on any Collateral other than the security
interests granted hereunder, any right to apply the Collateral against claims
other than the right to apply the Collateral against the Secured Obligations in
accordance with the terms hereof and any right to set off claims that are not
Secured Obligations against the Collateral.
ss.9. RIGHTS OF THE COLLATERAL AGENT.
(a) The Collateral Agent may execute any of its duties
hereunder by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel, at its own expense (except to extent entitled to
reimbursement pursuant to ss.9(c) or ss.10), concerning all matters pertaining
to such delegation of such duties.
(b) Neither the Collateral Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates shall be (i)
liable for any action lawfully taken or omitted to be taken by it hereunder
(except for its negligence or willful misconduct) or (ii) responsible in any
manner to any of the holders for any recitals, statements, representations or
warranties made by the Company or any representative thereof contained herein or
in any related document or in any certificate, report, statement or other
document referred to or provided for in, or received by the Collateral Agent
under or in connection with, the transactions contemplated hereby or for the
value, validity, effectiveness, genuineness, enforceability or
<PAGE>
15
sufficiency of the this Agreement, the Notes or the Note Agreement or for any
failure of the Company to perform its obligations thereunder. Except as
expressly provided herein, the Collateral Agent shall not be under any
obligation to any holder to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, the Notes or the Note Agreement, or to inspect the properties, books
or records of the Company.
(c) The Collateral Agent may conclusively rely, and shall be
fully protected in so relying, upon any writing, notice, consent, certificate,
affidavit, letter, telecopy, statement, order, opinion or other document
(including without limitation any Settlement Statement or Daily Report referred
to in ss.4 hereof) believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Company), independent accountants and other experts selected by the Collateral
Agent. In connection with any request of the Required Holders, the Collateral
Agent shall be fully protected in relying on a certificate of any Person, signed
by a representative of such Person, setting forth the Secured Obligations held
by such Person as of the date of such certificate, stating that the Person
signing such certificate is an authorized representative of such Person and
setting forth specifically the provision hereof pursuant to which the Collateral
Agent is being directed to act. The Collateral Agent shall be entitled to rely
conclusively, and shall be fully protected in so relying, on such certificate.
The Collateral Agent shall have no liability for failing or refusing to take any
action hereunder (i) if such action would, in the opinion of the Collateral
Agent, be contrary to law or the terms hereof, (ii) if such action is not
specifically provided for herein, or it shall not have received any such advice
or concurrence of the Required Holders as it deems appropriate or (iii) if, in
connection with the taking of any such action that would constitute an exercise
of remedies hereunder, it shall not first be indemnified to its reasonable
satisfaction by the holders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take such action. The
Collateral Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with a request of the Required
Holders and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the holders.
(d) If, with respect to a proposed action to be taken by it,
the Collateral Agent shall determine in good faith that the provisions hereof
relating to the functions or responsibilities or discretionary powers of the
Collateral Agent are or may be ambiguous or inconsistent, the Collateral Agent
shall notify the holders, identifying the proposed action and the provisions
that it considers are or may be ambiguous or
<PAGE>
16
inconsistent, and may decline either to perform such function or responsibility
unless it has received the written confirmation of the Required Holders that the
Required Holders concur in the circumstances that the action proposed to be
taken by the Collateral Agent is consistent with the terms of this Agreement or
is otherwise appropriate. The Collateral Agent shall be fully protected in
acting or refraining from acting upon the confirmation of the Required Holders
in this respect, and such confirmation shall be binding upon the Collateral
Agent and all of the holders.
(e) The Collateral Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or PTN Event of Default unless and
until a Responsible Officer of the Collateral Agent has actual knowledge thereof
or has received a notice or a certificate from a holder or the Company stating
that a Default or a PTN Event of Default has occurred. The Collateral Agent
shall not have any obligation whatsoever either prior to or after receiving such
notice or certificate to inquire whether a Default or a PTN Event of Default has
in fact occurred and shall be entitled to rely conclusively, and shall be fully
protected in so relying, on any notice or certificate so furnished to it. No
provision hereof shall require the Collateral Agent to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. In the event that the Collateral Agent receives such a notice of the
occurrence of any Default or PTN Event of Default, the Collateral Agent shall
give notice thereof to the holders. Subject to the second preceding sentence,
the Collateral Agent shall take such action with respect to such Default or PTN
Event of Default as so requested by the Required Holders.
(f) The Collateral Agent shall have no liability for any loss
resulting from any investment or reinvestment contemplated by ss.6 or any
liquidation of any such investment prior to its maturity or the failure of an
authorized person of the Company to give the Collateral Agent written
instructions to invest or reinvest, except in all cases for its bad faith,
willful misconduct or negligence. The Collateral Agent may sell or liquidate any
Eligible Investment (without regard to maturity date) whenever the Collateral
Agent is required to make any deposit, transfer or distribution pursuant to this
Agreement, and the Collateral Agent shall not be liable to any Person for any
loss suffered because of such sale or liquidation or by any delay in liquidation
other than by reason of its bad faith, willful misconduct or negligence.
<PAGE>
17
ss.10. INDEMNIFICATION AND FEES.
(a) The Company shall indemnify the Collateral Agent and its
directors, officers, employees and agents from and against any and all claims,
losses, liabilities, obligations, actions, judgments, suits, damages (including
foreseeable and unforeseeable consequential damages and punitive damages),
costs, expenses and disbursements (including, without limitation, the reasonable
fees and disbursements of counsel) of any kind or nature whatsoever that may at
any time be incurred by the Collateral Agent or such Person (hereinafter the
"INDEMNIFICATION AMOUNT") growing out of or resulting from (i) this Agreement,
the Notes or the Note Agreement (including, without limitation, the enforcement
thereof), (ii) any refund or adjustment of any amount paid or payable to the
Collateral Agent or any holder under or in respect of the Collateral; PROVIDED,
that the Company shall not be obligated to indemnify any Person with respect to
any claim, loss, liability, obligation, damage, cost, expense or disbursement to
the extent any of the foregoing are caused by the Collateral Agent's or such
Person's negligence or willful misconduct.
(b) The Company will pay upon demand to the Collateral Agent
the amount of any and all reasonable out-of-pocket expenses, including the
reasonable fees and expenses of its counsel (and any local counsel) and of any
experts and agents, which the Collateral Agent may incur in connection with (i)
the execution and administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iii) the exercise or enforcement (whether through
negotiations, legal proceedings or otherwise) of any of the rights of the
Collateral Agent or the holders hereunder (including in connection with
obtaining the tax opinion required by the Pooling and Servicing Agreement in
connection with the transfer of any of the Subordinated Certificates in
accordance with the terms hereof) or (iv) the failure by the Company to perform
or observe any of the provisions of this Agreement.
(c) The Company shall pay to the Collateral Agent an annual
agency fee, as agreed upon in writing by the Company and the Collateral Agent,
on each anniversary of the Closing Date occurring during the period commencing
on the Closing Date to and including the date on which the Secured Obligations
are paid in full.
(d) The provisions of this ss.10 shall survive termination of
this Agreement and the resignation or removal of the Collateral Agent.
<PAGE>
18
ss.11. RESIGNATION OR REMOVAL OF THE COLLATERAL AGENT.
The Collateral Agent may resign as Collateral Agent upon 30
days' notice to the holders and may be removed at any time with or without cause
by the Required Holders, with any such resignation or removal to become
effective only upon the appointment of a successor Collateral Agent under this
ss.11. If the Collateral Agent shall resign or be removed as Collateral Agent,
then the Required Holders shall appoint (and if no such successor shall have
been appointed within 60 days of the Collateral Agent's resignation or removal,
such Collateral Agent may appoint or apply to a court of competent jurisdiction
to appoint) a successor agent acting in the relevant capacity for the holders,
which successor agent shall be a bank or trust company that has an office in New
York, New York and that has a combined capital and surplus of at least
$100,000,000 which successor agent shall in either case be reasonably acceptable
to the Company, whereupon such successor agent shall succeed to the rights,
powers and duties of the "Collateral Agent" and the term "Collateral Agent"
shall mean such successor agent effective upon its appointment, and the former
Collateral Agent's rights, powers and duties as Collateral Agent shall be
terminated, without any other or further act or deed on the part of such former
Collateral Agent (except that the resigning Collateral Agent shall deliver all
Collateral then in its possession to the successor Collateral Agent) or any of
the holders. After any retiring Collateral Agent's resignation or removal
hereunder as Collateral Agent, the provisions of this Agreement shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Collateral Agent.
ss.12. SEVERABILITY.
If any provision hereof is invalid or unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be construed in order to carry out the intentions of the parties hereto as
nearly as may be possible and (b) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
ss.13. SUCCESSORS AND ASSIGNS.
Whenever in this Agreement any of the parties hereto is named
or referred to, the successors and assigns of such party shall be deemed to be
included and all covenants, promises and agreements in this Agreement by or on
behalf of the respective parties hereto shall bind and inure to the benefit of
the respective successors and assigns of such parties, whether so expressed or
not.
<PAGE>
19
ss.14. COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
all of which when taken together shall constitute one and the same instrument
and any of the parties hereto may execute this Agreement by signing any such
counterpart.
ss.15. AMENDMENT; WAIVER, ETC.
No amendment or waiver of any provision of this Agreement
shall be effective unless the same shall be in writing and signed by the
Collateral Agent, the Required Holders and the Company and any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; PROVIDED, that no amendment or waiver shall modify the
definition of "Secured Obligations" or the provisions of ss.4 or ss.7 hereof (or
any defined term used therein) or this ss.15 unless the same shall be in writing
and signed by each holder, the Collateral Agent and the Company. No delay on the
part of the Collateral Agent or any holder in the exercise of any right, power
or remedy shall operate as a waiver thereof, nor shall any single or partial
waiver by any holder of any right, power or remedy preclude any further exercise
thereof, or the exercise of any other right, power or remedy.
ss.16. HEADINGS.
Headings herein are for convenience only and shall not be
relied upon in interpreting or enforcing this Agreement.
ss.17. TERMINATION.
This Agreement shall remain in full force and effect until
payment in full of all the Secured Obligations.
ss.18. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of New York excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
ss.19. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (A) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (B) by registered or certified mail with return receipt
requested (postage prepaid), or (C) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
<PAGE>
20
(i) if to the Collateral Agent, at the address for notices for
the Collateral Agent set forth on the signature page hereto or at any
address furnished in writing by the Collateral Agent to the other
parties hereto,
(ii) if to any holder of any Note, as provided in the Note
Agreement, or
(iii) if to the Company, to the Company at P.O. Box 407155,
Fort Lauderdale, Florida 33340-7155, telecopy no.: 954-497-3136, to
the attention of the President, or at such other address as the
Company shall have specified to the other parties hereto in writing.
Notices under this Section 19 will be deemed given only when actually received.
ss.20. NO BANKRUPTCY PETITION.
The Collateral Agent hereby agrees with and covenants to the
Company that it shall not commence, initiate or cause to be initiated any
proceeding provided for by any Debtor Relief Law against the Company or any
property of the Company.
<PAGE>
21
IN WITNESS WHEREOF, the Company, the Initial Holder and the
Collateral Agent have caused this Agreement to be duly executed by their duly
authorized officers all as of the date first above written.
CF ONE, INC.
By: /s/ J. Michael Stanley
-------------------------
Name: J. Michael Stanley
Title: Sr. Vice President
CONNECTICUT GENERAL LIFE INSURANCE
COMPANY
By CIGNA Investments, Inc.
By /s/ Keith A. Gollenberg
-----------------------
Name: KEITH A. GOLLENBERG
Title: VICE PRESIDENT
BANKERS TRUST COMPANY,
as Collateral Agent
By: /s/ Linda A. Rakolta
--------------------
Title: Vice President
Address for Notices:
Bankers Trust Company
Corporate Trust and Agency Group
4 Albany Street
New York, New York 10006
Telecopier No.: 212-250-6684
Telephone No.: 212-250-8360
Attention: Structured Finance
Exhibit 10.20
AGREEMENT
This Agreement is made as of the ____ day of June, 1996 by and among
CAPITAL BANK, a Florida banking corporation (the "Bank"), CAPITAL FACTORS
HOLDING, INC., a Florida corporation ("Holding"), CAPITAL FACTORS, INC., a
Florida corporation and subsidiary of Holding ("Factors"), CF ONE, INC., a
Delaware corporation and subsidiary of Holding ("CFO"), and CF FUNDING CORP., a
Delaware corporation and subsidiary of Factors ("CFC") (Factors, CFO and CFC are
hereinafter collectively referred to as the "Subsidiaries").
WHEREAS, the Bank, Holding and the Subsidiaries desire to enter into
this Agreement for the purpose of providing for certain matters relating to the
relationship among the Bank, Holding and the Subsidiaries.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
1. RESTRICTIONS RELATING TO SHARE ISSUANCE AND ACQUISITIONS. During the
period that and so long as the Bank, presently the sole shareholder of Holding,
or such other entity or person designated in writing by the Bank or by a
previous designee of the Bank and to which or whom the Bank or such previous
designee transfers shares in Holding constituting control of Holding within the
meaning of Section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), that is, shares having at least 80 percent of the total combined voting
power of all classes of stock entitled to vote for directors of Holding and
constituting at least 80 percent of the total number of shares of each other
class of stock of Holding, all as defined in Section 368(c) of the Code (all
such stock in the aggregate constituting "Eighty Percent Control" and the Bank
or any such designee being hereinafter referred to as an "Eighty Percent
Holder"), holds Eighty Percent Control (such period being hereinafter referred
to as the "Eighty Percent Period") and although a vote of shareholders is not
and shall not be required under applicable law or Holding's Amended and Restated
Articles of Incorporation or the Articles of Incorporation of any of the
Subsidiaries, as amended (the "Articles"), for the issuance of shares of capital
stock or equity securities or any debt or other instruments that are convertible
or exchangeable into stock or any other equity security of Holding, including
options or any other rights to purchase capital stock, pursuant to any employee
benefit plan or stock option plan (collectively "Plan") or otherwise, that are
authorized under the Articles, but unissued, or, in many circumstances, to
acquire an ownership interest in an entity or to form an entity, the advance
written approval of the Eighty Percent Holder shall be required (unless waived
in writing by the Eighty Percent Holder) prior to (i) Holding taking any action,
including without limitation, the issuance of any capital stock or other equity
security or any debt or other instrument that is convertible or exchangeable
into stock or any other equity security of Holding, including options or any
other rights to purchase capital stock, pursuant to any Plan or otherwise, that
would reduce the percentage of ownership of the Eighty Percent Holder in the
capital stock of Holding so that the Eighty Percent Holder thereafter would not
own stock constituting Eighty Percent Control (treating options or any other
rights to purchase capital stock as exercised immediately upon issuance for
purposes of making this determination) or that otherwise would reduce (or, with
the taking of any action contemplated by the instrument in
<PAGE>
question, could reduce) the Eighty Percent Holder's ownership of Holding stock
below "control" of Holding within the meaning of Section 368(c) of the Code;
(ii) any Subsidiary issuing any capital stock or equity security, any debt or
other instrument convertible or exchangeable into its stock or other equity
security or any option or other right to purchase its stock or other equity
security or any right to purchase the same; or (iii) Holding or any Subsidiary
acquiring any direct or indirect ownership interest in an entity or forming an
entity, in either case, that would be treated as a corporation for federal
income tax purposes under the Code, and neither Holding nor any Subsidiary shall
take any such action above without the prior written approval of the Eighty
Percent Holder. Any attempt to take such action without the prior written
approval of the Eighty Percent Holder shall be null and void and any purported
issuance of capital stock or an equity security or any convertible or
exchangeable debt or other instrument or any right to purchase the same or any
acquisition or formation of an interest in an entity in violation of this
provision shall not terminate the Eighty Percent Period.
2. RESTRICTIONS RELATING TO BOARDS OF DIRECTORS AND BYLAWS. During the
Eighty Percent Period, neither Holding nor any Subsidiary shall change the
number of its directors, fill any vacancy in its Board of Directors or alter,
amend or repeal, in whole or in part, its Bylaws, or adopt new Bylaws, without
the advance written approval of the Eighty Percent Holder (unless such
requirement is waived in writing by the Eighty Percent Holder).
3. PRIOR APPROVAL IS NOT REQUIRED FOR SHAREHOLDER VOTE. The obligations
of Holding and the Subsidiaries contained in this Agreement to obtain the
advance written approval of the Eighty Percent Holder shall continue in effect
during the Eighty Percent Period, notwithstanding that neither Holding nor any
of the Subsidiaries is required under applicable law or its Articles to have a
vote of shareholders to take any such actions, except possibly with respect to
the acquisition of any entity, and that neither Holding nor the Subsidiaries
will be having a vote of shareholders to take any such actions, except possibly
with respect to the acquisition of any entity. The consent or lack of consent of
the Eighty Percent Holder with respect to any matter is not a vote on such
matter by the Eighty Percent Holder.
4. PREEMPTIVE RIGHTS. During the Eighty Percent Period, the Eighty
Percent Holder shall have preemptive rights in Holding as set forth below (the
"Preemptive Rights"). Pursuant to the Preemptive Rights, in the event that
Holding proposes to issue and sell additional shares of any capital stock or
equity security, including authorized but unissued shares, to any person or
entity other than the Eighty Percent Holder, including without limitation (i)
pursuant to the exercise of options granted under any employee benefit or stock
option plan, (ii) to satisfy conversion rights, (iii) as compensation or (iv)
otherwise than for money; then the Eighty Percent Holder shall have the right,
for a period of sixty days from the date of receipt of written notice of any
such proposed issuance or sale, and, in all events, prior to any such issuance
or sale by Holding, to purchase, at its discretion, up to a percentage of such
capital stock or equity securities equal to its proportionate interest in
Holding prior to any such proposed issuance or sale of such capital stock or
equity security to another entity or person (the "Pro Rata Amount"), at the
proposed issuance price, which right shall be exercisable by written notice to
Holding given within sixty days after receipt by the Eighty Percent Holder of
the written notice of such
2
<PAGE>
proposed issuance or sale. If the Eighty Percent Holder shall fail to respond to
Holding within the sixty-day notice period, such failure shall be regarded as a
rejection of its right to participate in the purchase of such capital stock or
equity securities. To the extent that the Eighty Percent Holder does not elect
to purchase its Pro Rata Amount, Holding may issue all (but not less than all)
of the remainder of such capital stock or equity securities being offered for
issuance or sale which the Eighty Percent Holder has elected not to purchase to
any person or entity other than the Eighty Percent Holder, at the price
specified by Holding in its notice to the Eighty Percent Holder, provided that
such issuance is bona fide and made within 90 days of the date of such notice.
The closing of any purchase under this Section 4 shall be at a date and
time selected by the Eighty Percent Holder within ten business days after the
Eighty Percent Holder is notified of the closing by Holding, or at such other
time and place as the parties to the transaction may agree upon.
Notwithstanding anything contained in this Section 4, the provisions of
Section 1 remain in full force and effect and supersede the provisions of this
Section 4, and no issuance or sale may be made to any party pursuant to this
Section 4 in violation of Section 1.
5. ACTIONS AND OBLIGATIONS OF BANK. Holding and the Subsidiaries are
entering into this Agreement because Bank has agreed to pursue an initial public
offering for Holding. Bank agrees to exercise its rights in a reasonably prompt
manner, subject to its use of diligence reasonably deemed necessary by the Bank.
6. INJUNCTIVE RELIEF. Each of Holding and the Subsidiaries agrees that
any violation of the foregoing covenants will cause irreparable injury to the
Bank, that the remedies at law for any such violation will be inadequate to the
Bank, and that the Bank shall, in addition to and not in limitation of any other
rights and/or remedies available at law or in equity, be entitled to temporary
and permanent injunctive relief and specific performance without the necessity
of proving actual damage.
7. SEVERABILITY. Each of the covenants herein is independent and
severable. Each covenant shall remain in full force and effect regardless of the
enforceability of any other covenant herein. If it shall be determined at any
time by a court of competent jurisdiction that any provision of this Agreement
or any portion thereof is unenforceable, then such portions as shall be
determined to be unreasonably restrictive or unenforceable shall thereupon be
deemed amended as to make such restrictions reasonable in the determination of
such court and the provisions, as amended, shall be enforceable between the
parties to the same extent as if such amendment had been made prior to the date
of any alleged breach of such provision.
8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
3
<PAGE>
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, understandings,
negotiations and discussions, both written and oral, between the parties hereto
with respect to the subject matter hereof. This Agreement may not be amended or
modified in any way except by a written instrument executed by all of the
parties hereto.
10. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit of
and binding upon the parties hereto, their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned have hereunto set hand and seal this
____ day of June, 1996.
CAPITAL BANK
By:
CAPITAL FACTORS HOLDING, INC.
By:
CAPITAL FACTORS, INC.
By:
CF ONE, INC.
By:
CF FUNDING CORP.
By:
4
Exhibit 21.1
Wholly-Owned Subsidiaries of Capital Factors Holding, Inc.
Capital Factors, Inc.
CF One, Inc.
CF Funding Corp. is the wholly-owned subsidiary of Capital Factors, Inc.
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Capital Factors Holding,
Inc. on Form S-1 of our report dated February 28, 1996 (March 4, 1996 as to the
second paragraph of Note 13, May 16, 1996 as to the third paragraph of Note 13
and June __, 1996 as to the first paragraph of Note 13) appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Ft. Lauderdale, Florida
June 13, 1996
The above consent is in the form which will be signed by Deloitte & Touche LLP
upon the issuance of the Independent Auditors' Report which is expected to be
rendered upon consummation of the 10,000-for-one stock split described in the
first paragraph of Note 13 to Consolidated Financial Statements.
/s/ DELOITTE & TOUCHE LLP
Ft. Lauderdale, Florida
June 13, 1996
Exhibit 99.1
CONSENT OF CYNTHIA COHEN TURK
The undersigned, a nominee for director of Capital Factors Holding,
Inc., a Florida corporation (the "Company"), hereby (i) consents to being
nominated for the position of director of the Company and agrees to serve
as such if elected, and (ii) consents to being named as a prospective
director and/or director nominee in the Company's Registration Statement on
Form S-1 relating to the Company's initial public offering of its common
stock, and in the Prospectus contained therein proposed to be circulated in
connection with such offering, and in all amendments thereto.
Executed this 13th day of June 1996.
/s/ CYNTHIA COHEN TURK
-----------------------------
Cynthia Cohen Turk
Exhibit 99.2
CONSENT OF NORMAN G. EINSPRUCH
The undersigned, a nominee for director of Capital Factors Holding,
Inc., a Florida corporation (the "Company"), hereby (i) consents to being
nominated for the position of director of the Company and agrees to serve
as such if elected, and (ii) consents to being named as a prospective
director and/or director nominee in the Company's Registration Statement on
Form S-1 relating to the Company's initial public offering of its common
stock, and in the Prospectus contained therein proposed to be circulated in
connection with such offering, and in all amendments thereto.
Executed this 14th day of June 1996.
/s/ NORMAN G. EINSPRUCH
-----------------------------
Norman G. Einspruch
